As the Asian economies rebound from their 1997-1998 lows, we hear much less about the alleged collapse of something called “Asian values” and its crony capitalism. Which is good, since there never was such a thing as “Asian values” in the first place.
Asia has three, very different, value systems. One belongs solely to Japan. As an isolated, deeply feudalistic nation for much of its history, its values were not very different from the same collectivist, warrior-spirit, practical-oriented values that used to be found in northern European societies.
In its village-mentality (“mura ishiki”), anti-intellectualism, old-boy networks, muddle-through attitudes, liking for ritual and royalty, instinctive honesty in personal relations, fussy attention to detail (the trains run on time) and hands-on manufacturing excellence, it resembles pre-20th century Britain — another isolated island nation with a long history of advanced feudalism.
The Southeast Asian nations are a proto-Japanese model. Their relative isolation also allowed them to develop strong village-based and incipient feudalistic societies, in Indonesia especially. But colonialism chopped off the next stage of that development. So they ended up with a rather crude personalism overlain by the values of the colonizer.
If they had been allowed to mature naturally it is very likely they would have ended up like Japan. Bali, the last Indonesian island to be colonized by the Dutch, created a feudalistic society not unlike that of Tokugawa Japan.
Then there are the Confucian societies of Sinitic Asia — Singapore, Taiwan, Korea and even communist China to some extent. Confucianism, too, has feudalistic origins. But as an intensely argued ideology, used for administering large societies for long periods, it came to encourage logical, rationalist thinking.
The debating and diplomatic excellence of the Sinitic-culture peoples, their past record of scientific and philosophical progress, their skillful economic management and their rising dominance today in the finance and computer industries — all areas where Japan is seriously weak — are not accidental.
It is the emphasis that most non-Western, including Asian, value systems put on human relations that fuels Western accusations of crony corruption and crony capitalism. But it is unlikely that this caused the Asian crisis, particularly since we now discover the French, German and EU political bureaucracies are into crony corruption.
Rather than crony capitalism, the key factor in the Asian crisis was the Western cowboy capitalism that allowed fast-trigger financiers to push their money in and out of Asia at will — at great profit to themselves and great harm to the Asian economies.
But, as some of us pointed out at the time, the currency collapses in the Asian economies automatically guaranteed their recovery since currency collapse ipso facto means cheaper exports and more expensive imports. Textbook Western economists who equate currency collapse with economic collapse could not handle such complicated thinking.
Western economists have consistently got it wrong over Asia. Paul Krugman made waves before and during the Asian crisis by saying that Asian economic progress was superficial, the crude result of combining labor with capital as in the former Soviet Union.
The Krugman thesis harked back to the textbook formula that says technology is a factor needed for progress. The Asians, other than Japan, had shown little aptitude for technological innovation, he said.
But this is 1950s economics. In today’s world, technology is virtually a free good, thanks to the ease of direct foreign investment and improved communications. If the Asians lack technology, how come they are able to export such a wide range of high-tech goods to the West?
What keeps nations backward is one thing and one thing only. It is lack of infrastructure, used in the full sense of that word to include not just roads and bridges but human factors also: work ethic, entrepreneurial spirit, sensible bureaucrats, repair shops, reliable suppliers, etc. That kind of human infrastructure does not come from governments or the World Bank. It can only come from entrepreneurs investing in enterprises that succeed and so improve the human infrastructure for other investors.
The role of government is simply to create the conditions that encourage and allow the entrepreneurs to succeed. In East and Southeast Asia, governments have fulfilled that role quite well.
The result is a snowball effect. Each successful investment improves infrastructure, which in turn encourages even more investment. Even rising labor costs do little to stop the snowball. This is what we saw in the developing East and Southeast Asia economies until the “cowboys” began shooting.
To save face, Western critics now say that while the Asian economies have made a surprising recovery, further recovery requires restructuring in the Western image. But Malaysia’s spectacular recovery was due mainly to ignoring Western advice. At the time, the critics predicted dire consequences. Today they are strangely silent.
Then there is China. Critics have long been predicting economic implosion due to inefficient state industries and a range of other ills. They also like to play with statistics to prove China lags far behind Japan.
But at parity prices and exchange rates, it is likely that China’s GNP already equals Japan’s. And China proves that inefficient employment is better than no employment, even if the Western textbook economists responsible for the now-stagnant East European economies still want to think otherwise.
China’s infrastructure is improving daily. It will be many decades before rising wage levels begin to harm competitiveness. In economic terms at least, the 21st century will be Asia’s, with China in the lead. Hopefully by that time, Japan, too, will finally have got its economic act together.
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