The distress in the Asian economies may be bottoming out. The APEC meeting of 21 Pacific Rim nations has been held, and gone flat. Time now to look at economico-political matters in a way that configures phenomena before and beyond recent waves and troughs. Think from present incoherence toward future community.
I. On Miracle and Debacle
(a) Hello, Vasco da Gama. Before the year 1998 expires, let’s remember Vasco da Gama. 500 years ago he set sail, and succeeded where Cristoforo Colombo had failed, in discovering a new sea route from Europe around Africa to India, thence to Southeast Asia and China. We annually celebrate Christopher’s error. We ought to recognize a Vasco da Gama moment: the half millennium since North Atlantic powers began inexorably to tangle with South and East Asian ones. We have been connected ever since. Now it is timely to imagine Pacific community, rather than the economic torpor of President Clinton’s visit to Japan and Korea, or the exchange of barbs for pique launched by Vice President Gore and Secretary Albright with their Malaysian hosts. The news, as usual, is not inspiring. We need some history.
(b) The European Miracle. Any Asian miracle we have recently seen, or may see again, is derivative in part from the European miracle signified by the date 1498. Europe was able to project power through national competition with the materials they had in focus: military and nautical technology, and organizational concepts; management of time, space and resources. Europe put together a Roman alphabet and Arabic numerals and an empirico-scientific mode of thinking that carried it around the world.
China had printing and gunpowder and hydraulic engineering and imperial organization before or better than Europe and excellent ships, too. They sent Admiral Cheng Ho around India to Africa before Vasco da Gama. But he never discovered Europe. Why is there no Cheng Ho age in North Atlantic history? Because his motive was different from Vasco da Gama’s. He was loading up his ships with curiosities for his emperor’s court, such as “auspicious giraffes” from Africa. Sailing an ark of exotic tribute is not the same as exploring paths for capitalistic trade and investment.
The European miracle that exploded all over the world was a military-political-financial mode of organization, which once took the form of sovereign imperialism over other lands and peoples. We are the biggest and best organized descendant of that outburst. We grew first by revolution away from Europe; then by reinventing corporations, government and society to productive and creative ends. How should we now understand and reconceive relations with modern East Asia?
II. The East Asian Miracle
(a) The Economic Phenomena. In 1993 the World Bank published a book entitled: “The East Asian Miracle.” The story was an apparently compelling one, of eight nations — Japan, Korea, Hong Kong, Singapore, Taiwan; Indonesia, Malaysia, Thailand. China, a ninth nation, was included by reference as having the same high growth rates, but excluded from analysis because of its non-comparable structure of economy. Since 1960 these countries had grown faster than all other regions of the world: more than twice as fast as the rest of East Asia, three times as fast as Latin America and South Asia, and twenty-five times faster than sub-Saharan Africa. And to strike home: more than twice as fast as the OECD economies, or the United States.
This was being achieved, furthermore, with declining income inequality and reduced poverty — in contrast to terrible and growing inequities in Latin America and elsewhere.
How was it being done? By “getting the basics right.” High domestic financial savings sustained high investment levels. Agriculture declined in relative importance while improving in productivity. Population growth rates declined more rapidly than anywhere else. Education policies focused on primary and secondary schools, generating rapid increases in labor force skills. All these economies were open to foreign ideas and technology. In most, the government practiced strategies of selective industry promotion. In Northeast Asia especially, the World Bank concluded that government interventions “resulted in higher and more equal growth than would otherwise have occurred.”
(b) Asian Values and American Delinquencies. Exaggerations of this story told us we would eventually be left in the dust. The case for “Asian values” also boomed and peaked around the same time. “Study hard and obey your parents,” a Korean dictum, may suggest the spirit involved. Asians were confident they knew the way, and some began to suggest that the West was lost. Singapore got tired of our sniggering about their fines for leaving chewing gum on the streets, and asked us about ourselves (reasonably, I would say): Why are Americans not stamping out the sale of crack on our streets? The Prime Minister of Malaysia liked to remind us that in one generation our rate of violent crime had quadrupled, single parent families had tripled, and our number of state and federal prisoners had also tripled. East Asia was newly conscious of its own rich cultural, philosophical and social legacy. We were sometimes diagnosed as a drop-out, pill-popping, family-scrapping, obese society; victims of affluence and trash culture, symbolizing the survival of the fattest.
Perhaps some of these critiques should have been taken to heart. We could do a lot more to strengthen our society through family, school, and church, with a lot less emphasis on material accumulation and empty leisure. In any case, the stock market index, up or down, is the moral measure of no society, Atlantic or Pacific.
III. The Asian Disease and Its Contagion
Less than a year and a half ago, the healthy Asian economic picture began rapidly to change. The unravelling of the Thai baht in mid-July 1997 triggered currency erosions and stock market crashes through most of the heralded eight nations. “Triggered,” because most of them were vulnerable through their own policies. The impact was severe. An approximate averaging of all these Asian economies suggests that an Asian asset worth 100 dollars in June 1997 was worth 25 dollars by September 1998. That loss of 75% compares with the US stock market crash of 1929 to 1932, when the S&P index decreased 87% (calculations by Charles Wolf, Jr., of RAND). Of this rapid and serious depreciation, the good news may be that most phenomena have now bottomed out. The sad news is that most of Asia is in a depression, which may yet affect the USA more than it has thus far.
For social texture, a few words about the worst case, Indonesia; the nastiest, Malaysia; the best case, Taiwan; and the biggest, Japan. Then a little guesswork about China — the greatest unknown.
(a) Indonesia. Indonesia, with a population of over 200 million, is the fourth largest country in the world. Of Muslim nations, largest of all, and maybe gentlest in its forms of Islam. But everything has come apart. First a major drought, then the rest. A year ago, I said to an Indonesian who worked in Jakarta for the World Bank, “The forests are in flame, the currency is burning up, and the stock market is melting down.” She added before I could draw breath, “And the people are on fire.” Only smoldering then, but her foresight was accurate.
Inflation has gone on to hit 80% in the first nine months of this year. Unemployment is perhaps 20 million and underemployment at least another 20 million. The poverty rate, which was once jiggered down to 11% (using a dollar a day income as the basis for the calculation), has now ballooned up to half the population, one hundred million people. Malnutrition and dysentery are increasing. Yet hospitals report fewer patients because of higher costs. Diabetes and dialysis patients are at high risk. Those who can’t afford imported medicine are saying goodbye to their doctors. Old tubing is being rewashed for use in transfusions. The educational system, which has a structural dropout rate of three million students a year, now has an additional loss of three and a half million children a year for financial reasons. Valiant national and international programs have been defined, trying to sandbag the high seas.
In March this year, Soeharto — the “Father of Development” — engineered his seventh five-year term. In mid-May it ended after riot, rape, arson and murder at the nerve center, Jakarta. His surrogate son and VP, Habibie, is now in his place. The Parliament, mostly Soeharto and Habibie’s appointments, has just met in special session to pass twelve reform decrees. In the streets twenty thousand student protestors sustaining the reform mood faced thirty thousand army and police, augmented by a huge number of “volunteer civilian guards,” many of them jobless, enlisted for three meals and a dollar a day. The result was more riots, with sixteen dead and hundreds injured. Will Indonesia next May have, as passed by Parliament, its first free national election in 44 years? Can it establish an irreversible democratic momentum? Or will it revert to authoritarianism?
Any answer must be aware of what the official economists did not see, or grossly underweighed, in Indonesia’s “economic miracle”:
Environmental mismanagement and waste which, if analyzed as cost, might have cut Indonesia’s alleged growth by a third or more.
Trader psychology in most of Indonesia’s investors, which led to extremely short-term vision, and high debt to equity ratios–probably at least three to one in listed companies before the crash, and incalculably high in unlisted ones. Nearly 90% of listed companies are now insolvent.
The problems of overexpanded business compounded by overextended borrowing and underregulated banking. World Bank praise of the 1988 bank reforms as immensely successful would be laughable if they had not been disastrous.
An inverted pyramid of accumulation of wealth in Soeharto family, cronies, and associates. This did not make its way into Gini coefficients, which showed relative equity in national distribution of income. But it deeply penetrated the consciousness of the Indonesian people.
Armed forces which had lost their professional focus by becoming involved in politics, bureaucracy, and corporations; an army which was in factional paralysis during the worst moments of rioting in May.
A repressed popular consciousness that until now could not take shape in deliberate political will, but only in frustration, racial and religious tension, and outbreaks of violence.
Decades of deliberate suppression of institution building. In post-1989 terms, with regard to pluralism or civil society, Indonesia is closer to Romania or Bulgaria than to Czechs, Poles, or Hungarians.
Indonesia, in short, has been mismanaged, repressed, exploited, and stifled in multiple ways. The human and natural resources that exist there are extraordinarily rich, and can over time generate a vibrant nation. The preconditions, however, are several: the operations of an open society, symbolized and beginning with free elections next May; chastened, disciplined, and regulated business and banking; a professionally focused armed forces with one mission (there being no external enemy), and that is public security; a decently paid civil service with one mission, public service; a thorough investigation of the recent pseudo-royal family’s sources of wealth, ensuring redistribution where appropriate to public means and ends, and the stripping of neo-feudal values from Indonesian leadership style.
Is this too much to ask? Not for a proud people capable of a great nation. Is this too much to expect in a short time? Yes. Give it a long time, then. Start counting now. The best sign — completely overlooked by our media — is that the four leaders most interested in these ideas met together for the first time in early November and issued a joint declaration. If their followers prevail among the dozens of new parties registering, and over Golkar, the Suharto succession party, then the chances are good for democratic coalition government, European style.
(b) Malaysia. Kuala Lumpur has the world’s tallest building, the Petronas Towers. But it also symbolizes a giant credit bubble. Malaysia’s declines in stock market and in currency units are second only to Indonesia’s. Still, its percentage of non-performing loans may be only half of Indonesia’s, and its net debt to equity ratio is actually a little better than Singapore’s. But in a new and unpleasant way Malaysia is politically terrorized by its own Prime Minister, Dr. Mahathir.
When his early statements on the financial crisis sent the Malaysian markets down three times, Mahathir’s Deputy Prime Minister and Finance Minister, Anwar Ibrahim, persuaded him to keep quiet for a while. Anwar is a liberal capitalist and internationalist who, in New York last spring, quoted, precisely and with effect, Shakespeare, T.S. Eliot, and Joseph Schumpeter. Perhaps he could have sustained such a style, even with a boss whose vision has been directed bifocally to Mecca and to Tokyo.
But Anwar recently made the mistake of challenging Mahathir, seventeen years in power, for the party leadership. Mahathir had him jailed. Anwar is now under trial for ten counts of corruption in office and sodomy. I asked a friend, twice a cabinet minister in Singapore, how many counts he believed susceptible to conviction. None on corruption, he replied, because they could backlash to the government. One or two on sodomy, perhaps. Why, if secret police evidence on that dates back four or five years, has Mahathir kept in office a man he now declares unfit as a sodomite? The answer, obviously, has to do with a raw power struggle — as attested by photographs of Anwar being led to court with a blackened eye. This injury was not given to him by his wife; she is an ophthalmologist.
Mahathir has decided to run his own country his own way, and has imposed strict controls on currency and stock market. Whether this man, who blamed George Soros and international Jewry for his country’s financial troubles, can prevail in semi-isolation, remains to be seen. Mahathir is not identical with Malaysia. Conjecture has strongly arisen whether he is worthy of continued power.
(c) Taiwan. Not everything is going to hell in Asia. Taiwan has had steadily positive GDP growth and is on track for nearly 5% in ‘98, while every other capitalist economy in the region, even Singapore, is headed for negative figures (Indonesia nearly 20%). Other Taiwanese data are strong too: high foreign exchange reserves, low foreign debts, the strongest debt to equity ratio in the region except for Hong Kong, and the lowest percentage of non-performing loans. These factors may be attributed to policy memories of hyper- inflation from printing money in the late 1940s to finance the civil war against Mao Zedong and the Communists. That only accelerated defeat. Taiwan has been fiscally conservative, and avoids cheap foreign currency loans for speculative projects. The head of their Council for Economic Planning and Development says, “Capital is like blood. If you use too much of it, it will cost you your life.” That’s a more educational image than the grim one heard in Indonesia: “In banking, as in surgery, bleeding must eventually stop.”
Taiwan has put together engineering training, a national technology research lab and hard work of talented people to become a quiet giant in the world computer markets. They manufacture more than half the monitors and motherboards, and almost all of the world’s scanners. Their State Minister for Technology, Yang Shih-chien, says proudly that Taiwan has become almost transparent with Silicon Valley in information, human and material flow. This gives a new and broader meaning to transparency: open cooperation, lack of corporate vanity, profitable labor in obscurity, in Taiwan’s case selling three-quarters of their electronic production under someone else’s brand name — often American. For most of the region, however, transparency is needed in its most limited meaning: clear and trustworthy data for policy, transaction, and audit. Some who resist deride it as “occidental nudity.” They need, however, to save their skins by changing their ball costumes and masks for plainclothes.
(d) Japan. Much of Asia, not to mention our own beltway bureaucrats, wants Japan to be the locomotive to pull all the Asian economies up the hill.
The 200 billion dollar plan recently announced holds out some hope. But 800 such billions has already been spent in the last several years without changing political culture, domestic cross-purposes, and hidden drag. Two sets of figures help understanding. (1) Since the Japanese bubble burst after 1990, their total loss of value is the equivalent of 8 trillion US dollars in land and 4 trillion USD in stocks, or 12 trillion dollars in all. This, inflation adjusted, is equivalent to all Japan’s financial and material losses (excluding human losses) in World War II. (2) Take presently admitted non-performing loans of Japanese banks — add something for non-declared or out of sight — and then multiply proportionately in relation to the US savings and loan crisis of the late ’80s at its worst moment. This arithmetic suggests that the Japanese bank debt crisis, per capita, is five times as great as our S&L crisis. The United States eventually worked out of it, except for 120+ lawsuits still pending, and the political heritage called “Whitewater,” an alleged misuse of Resolution Trust Corporation funds. The Resolution Trust process generally worked well in the USA, but may come out differently when filtered through other cultures.
The editor of a Japanese equivalent of the Wall Street Journal published several months ago a brave series of articles on truths and shenanigans in the Japanese financial scene. His wife answered the doorbell one morning to be greeted by a gentleman with a revolver, who suggested that her husband publish no more such things. That editor is now working in another country. And the Japanese locomotive is still in the roundhouse.
(e) China. China is non-comparable, but inescapably must be reckoned with. After the various big and little Asian economic dragons have had their successes turn sour, is China the giant dragon who will prevail after, over, and above all? Or is China a colossal panda living on bamboo shoots that are rapidly disappearing?
The very fact that China is driving by policy for continued 8% growth may be dangerous. Stimulate domestic investment and demand? They’re doing it. But overhaul state industries and banks? They’re not doing it. Solving the political problem of growing unemployment (including a migrant population estimated at one hundred million or more) may advance the same crunches that other Asian economies are already in. Tremendous excess capacity, declining return on assets, non-performing loans, big property bubbles. Debt- equity ratios in Chinese state enterprises, once low, now approach 6 to 1, higher even than Korea. I am less in awe of China’s projected economic power than in intuitive fear of its structural weaknesses.
IV. Theodicy and the Next Millennium
Some present phenomena in the Asian crisis go beyond folly to greed and fear, pride and terror. The word evil is out of fashion, but I think it is healthy to recognize its dimensions in human affairs. We are soon to enter a new millennium, which will contain its own quotient of terror and pride, of fear and greed. My wife and I have a journalist son who says that one needs theodicy to cope with these things. I didn’t know what theodicy meant. Something to do with The Iliad? “No, Dad. Not The Odyssey. T-h-e-o-d-i-c-y. The explanation of the divine attributes of God that allow the existence of physical and moral evil.” Each reader might develop his/her own theodicy, assisted if necessary by pastor, rabbi, priest or imam. I fall back on the teaching that an all-wise and generous God gives us both freedom and grace. Our actions, and repentance of sin, dispose us to be saved or damned. Charles Kindleberger’s “A History of Financial Crises” reminds us that the New York crash of ’87 was not reflected in Tokyo, nor was the Tokyo crash of ‘90 repeated in New York. Panics are not automatically contagious internationally. But he also reminds us of the nearly bottomless fund of human vanity, appetite, mania, and stupidity. Long Term Capital Management, the Greenwich (Connecticut) hedge fund, and Long Term Capital Bank, the Tokyo mammoth, were both opaque until disastrous. A full and modern theodicy might include a theory of transparency that fairly binds souls to systems.
V. Community, Freedom, and Responsibility
Power issues, I realize, will not be softened, let alone dispatched, by moral theory. But there is comfort nonetheless in a historical lesson of which a five-time ambassador reminds us: “the dispersion of power to semi- independent centers is philosophically the wisest, and operationally the most effective, government in place. With the least commotion and fanfare, this system has ensured the fabulous prosperity and high degree of civil contentment of our people.” That’s Robert Strausz-Hupe about American federalism, and its application in our foreign policy to the Marshall Plan and NATO.
I dare apply the same federalistic thought in the century ahead, and across the other ocean, the one approached by Vasco da Gama. There, in the last thirty years, the Southeast Asian powers have nurtured ASEAN into being. It has functioned well to buffer regional hostilities. We should encourage its development without interference. Meanwhile, in a broader context, with our voice in ARF (ASEAN Regional Forum) and our continued hand in APEC (Asia Pacific Economic Cooperation) we may help ensure something grander, the slow emergence of a Pacific Community. Given the variety of cultures and numbers of people involved, that would be a vaster achievement than such Atlantic Community as exists. We might further the same end by attempting to elicit a new power-political center of gravity: recognize Japanese sloth and Chinese growth and diminish the mutual suspicion of these great nations by initiating policy dialogues with them on Asian security. Start with economic issues; move slowly to political and military matters.
I return to transparency, an essence of democratic faith. Because there is evil in human affairs, government should be conducted in the sunlight. Full information freely debated is a major guarantee of democracy. Such openness is increasingly desired by the Asian societies I have mentioned — as shown by Indonesian students demonstrating at risk, again; and Malaysian citizens daring to do so for Anwar Ibrahim. We must league ourselves with the elements of reason behind such forces and such voices. In containing as we can our own fears and greeds, our own prides and terrors, in expressing our own better nature, we will help advance the best energies of our neighbors all around the rim of the Pacific.
In the century just ending, James Madison has prevailed over Karl Marx. We must now hope and work that a world wired ever tighter electronically will be one in which petty self- interest yields, in the end, to creative common sense. Booms and busts are repetitive; they are the punctuation of capitalist history. After a bold exclamation point, an inverted question mark has appeared in Asia and elsewhere. In the long run, however, what matters is the history of freedom — how we define it, what we do with it, how we balance it with responsibility.