TIME Asia | Of Tigers, Bulls and Bears

FREE MARKETS: Chris Patten on the need for democracy ECONOMY: ANATOMY OF A CRISIS With no end in sight to the region's financial meltdown, the devastation so far offers up some crucial lessons for the future NO WAY OUT: David Roche defends IMF prescriptions	ASIA	February 2, 1998 VOL. 151 NO. 4
Of Tigers, Bulls and Bears Collusion and cronyism cannot be the basis for sustained economic growth By CHRIS PATTEN o now it's official. There wasn't an Asian economic miracle. Those of us who pointed this out before take no pleasure in seeing what has happened, as markets have crashed all around the region. Exaggeration of Asia's success is now being followed by underestimating what Asian countries have recently achieved. Asia's advance was not miraculous. It was the result above all of following consistently a few sensible policies--investment in education and health, support for export industries--at a time when world markets were opening and expanding fast. So the reason for Asia's success wasn't alien or inexplicable. It was the consequence of increasingly free trade in a growing world marketplace. While not miraculous, Asia's success was literally unique. Since reliable international economic statistics were first collected, no countries have expanded so fast for so long as those of East Asia. And their prosperity cascaded down to other countries nearby. The leap in living standards in Asia was not the outcome of some continent-based value system. If Confucius had been alive and writing today in Asia, he would probably have been locked up as a dissident. The proponents of "Asian values"--an argument taken up by many Westerners as a convenient excuse for ignoring the abuse of human rights--were merely seeking to justify their authoritarian regimes. Locking up your opponents and silencing critical newspapers has nothing to do with good economic management. The real damage of all this nonsense is that some Asian statesmen and business leaders came to believe that the laws of political and economic gravity did not apply to them. Now their people are paying the price for this folly in which the West too often encouraged them. Of course, the proximate cause for Asia's problems was the 1994 devaluation of the Chinese yuan and the recent strengthening of the American dollar, to which Asian currencies were mostly linked. The first toughened the competition in Asia's export markets. The second raised the cost of borrowing in heavily indebted countries. That's when things started to unravel last summer. But there are deeper-rooted problems as well. First, hubris is no basis for sound economics. Too many Asian governments allowed spending and borrowing for prestige projects and property development to soar. The regulation of banks and financial services was lax. The bubble grew and grew and, as always happens to bubbles, it burst. Second, while traveling the road from quantity-based growth (what American economist Paul Krugman calls the growth that results from "perspiration") to quality growth (based on inspiration or knowledge-based industries), Asia has discovered that there comes a moment when economic development requires greater political pluralism, more accountability, more openness. Collusion and cronyism are no basis for sustained economic progress in a global economy. The collapse of the Peregrine investment bank was a paradigm for the region. Be sure of this: the next few years will give the lie to the ludicrous and racist notion that politics don't count in Asia, that no one there is interested in democracy, freedom and human rights. Some of the unpopular things that have to be done can be managed only by taking the people into a government's full confidence. There is a heavy irony in the situation of South Korea's newly elected President, the brave long-term democracy campaigner Kim Dae Jung, who is being left to sort out the mess left over from the country's authoritarian corporatist days. I wish him well and expect him to succeed more easily than his authoritarian opposite numbers elsewhere. Does what has happened in Asia matter to the rest of the world? And if it does, how can we help? Asia's success was never a threat. But its economic failure would be--hitting jobs, exports, growth and living standards everywhere. Our first task is to support the IMF, not rubbish its efforts. The IMF is prescribing the right medicine--cleaning up government and corporate balance sheets, opening and liberalizing markets. But the IMF must not let itself be seen as a Western bailout for U.S. and European banks and Asian billionaires, many of whom behaved as though they couldn't be trusted with the finances of the local flower show. Second, we shouldn't lump all the Asian economies into the same basket. Some--like Hong Kong, Taiwan and Singapore--are in fundamentally better shape than the others. And my guess is that the Koreans will turn the corner soon. Finally, we should recognize that this crisis will take longer to sort out than the Mexican one, and we must resist the protectionist pressures that will inevitably follow this crash in the developed world as well as in Asia. Free trade is still the right road into a brighter future. Chris Patten, the last British Governor of Hong Kong, is writing a book on Asian economic and political development
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Collusion and cronyism cannot be the basis for sustained economic growth

By CHRIS PATTEN

o now it's official. There wasn't an Asian economic miracle. Those of us who pointed this out before take no pleasure in seeing what has happened, as markets have crashed all around the region. Exaggeration of Asia's success is now being followed by underestimating what Asian countries have recently achieved. Asia's advance was not miraculous. It was the result above all of following consistently a few sensible policies--investment in education and health, support for export industries--at a time when world markets were opening and expanding fast. So the reason for Asia's success wasn't alien or inexplicable. It was the consequence of increasingly free trade in a growing world marketplace.

While not miraculous, Asia's success was literally unique. Since reliable international economic statistics were first collected, no countries have expanded so fast for so long as those of East Asia. And their prosperity cascaded down to other countries nearby. The leap in living standards in Asia was not the outcome of some continent-based value system. If Confucius had been alive and writing today in Asia, he would probably have been locked up as a dissident. The proponents of "Asian values"--an argument taken up by many Westerners as a convenient excuse for ignoring the abuse of human rights--were merely seeking to justify their authoritarian regimes. Locking up your opponents and silencing critical newspapers has nothing to do with good economic management.

The real damage of all this nonsense is that some Asian statesmen and business leaders came to believe that the laws of political and economic gravity did not apply to them. Now their people are paying the price for this folly in which the West too often encouraged them. Of course, the proximate cause for Asia's problems was the 1994 devaluation of the Chinese yuan and the recent strengthening of the American dollar, to which Asian currencies were mostly linked. The first toughened the competition in Asia's export markets. The second raised the cost of borrowing in heavily indebted countries. That's when things started to unravel last summer.

But there are deeper-rooted problems as well. First, hubris is no basis for sound economics. Too many Asian governments allowed spending and borrowing for prestige projects and property development to soar. The regulation of banks and financial services was lax. The bubble grew and grew and, as always happens to bubbles, it burst. Second, while traveling the road from quantity-based growth (what American economist Paul Krugman calls the growth that results from "perspiration") to quality growth (based on inspiration or knowledge-based industries), Asia has discovered that there comes a moment when economic development requires greater political pluralism, more accountability, more openness. Collusion and cronyism are no basis for sustained economic progress in a global economy. The collapse of the Peregrine investment bank was a paradigm for the region.

Be sure of this: the next few years will give the lie to the ludicrous and racist notion that politics don't count in Asia, that no one there is interested in democracy, freedom and human rights. Some of the unpopular things that have to be done can be managed only by taking the people into a government's full confidence. There is a heavy irony in the situation of South Korea's newly elected President, the brave long-term democracy campaigner Kim Dae Jung, who is being left to sort out the mess left over from the country's authoritarian corporatist days. I wish him well and expect him to succeed more easily than his authoritarian opposite numbers elsewhere.

Does what has happened in Asia matter to the rest of the world? And if it does, how can we help? Asia's success was never a threat. But its economic failure would be--hitting jobs, exports, growth and living standards everywhere. Our first task is to support the IMF, not rubbish its efforts. The IMF is prescribing the right medicine--cleaning up government and corporate balance sheets, opening and liberalizing markets. But the IMF must not let itself be seen as a Western bailout for U.S. and European banks and Asian billionaires, many of whom behaved as though they couldn't be trusted with the finances of the local flower show.

Second, we shouldn't lump all the Asian economies into the same basket. Some--like Hong Kong, Taiwan and Singapore--are in fundamentally better shape than the others. And my guess is that the Koreans will turn the corner soon.

Finally, we should recognize that this crisis will take longer to sort out than the Mexican one, and we must resist the protectionist pressures that will inevitably follow this crash in the developed world as well as in Asia. Free trade is still the right road into a brighter future.

Chris Patten, the last British Governor of Hong Kong, is writing a book on Asian economic and political development