critics foresaw crisis
East Asia's economic collapse has
provoked grim satisfaction among the 'miracle' doubters. By Raymond
THE leading opposition figure in
Indonesia, the latest focus of the economic turmoil in east Asia, yesterday
called for President Suharto to go, and said she might stand for the presidency
Megawati Sukarnoputri, daughter
of the man Mr Suharto deposed 32 years ago, is normally much more cautious
in criticising the regime. Her outspoken comments yesterday, unthinkable
even three weeks ago, show the depth of the crisis in the region. But as
currencies and stock markets collapse in one east Asian country after another,
one small group of people can be forgiven for feeling a certain grim satisfaction.
The explosive growth of the "tiger
economies" during the 1990s persuaded many politicians, academics and commentators
that a new age was dawning, a Pacific Century in which the West would have
to learn "Asian values" to keep up. Before becoming Prime Minister, Tony
Blair visited Singapore and praised aspects of its social welfare system
(while saying nothing about its human rights record). Some, drawing a straight
line into the future, predicted that China would be the world's biggest
economy within a couple of decades.
Gerald Segal was among the lonely
sceptics who questioned the existence of an "Asian miracle". The director
of a research programme launched by Britain's Economic and Social Research
Council (ESRC) to discover the secrets of east Asia's success, he argued
that the region's rapid rise was hardly surprising, given the huge sums
being invested. What he and a few others questioned was whether the money
was being wisely spent, and in particular whether genuine productivity
gains were being achieved.
These doubts are fast becoming the
new orthodoxy as a sea of bad debts engulfs the region and Asian economies
queue up for help from the International Monetary Fund. So where are Dr
Segal's opponents now? "Some of them still say the fundamentals are right,
and that the problems are temporary," he said. "But they are wrong: this
has set east Asia back a generation.
"If you look at what happened to
Latin American countries in the early 1980s, it has taken them 15 years
to get back on track, partly because of their stubborn belief that the
setbacks were not their fault. You can see the same mistakes being made
in east Asia - the Indonesian government has just drawn up a budget which
makes hopelessly unrealistic assumptions."
As for the danger of Britain and
other Western economies being singed by the Asian meltdown, so far Dr Segal
is sanguine. "The real surprise is just how little south-east Asia - even
South Korea, which is as large as the rest put together - has affected
us. Average growth among members of the Organisation for Economic Co-operation
and Development will be down less than half of 1 per cent this year. We
can live with that.
"China and Hong Kong are under severe
pressure at the moment, and the crisis may delay much-needed reforms. The
best guess is that they will avoid a crash now, at the expense of greater
"It will be a different matter if
the Japanese economy is pulled down, and we have do whatever it takes to
avoid that. As long as Japan holds, the rest of the world can breathe easily."
Far from throwing the research programme
off course, Dr Segal said most of the 19 ESRC studies, carried out over
several years at a cost of more than £2m, had identified the problems
which led to the present crisis. They had confirmed the view of a leading
sceptic, the American economist Paul Krugman, that much of the region's
investment had been unproductive and politically motivated.
"It was crony capitalism," said
Dr Segal. "It is not just a liquidity problem, and if you pump in more
liquidity to cure it, you will simply be giving a drunk more alcohol. Asian
economies have to take some pain now, or they will simply have a worse
But poor management of resources
was by no means the only reason for the difficulties of east Asian countries,
he added. "Sustained economic growth requires fundamental political reform
and a coherent foreign policy. There is a lack of transparency and pluralism
at home, while internationally their response to the crisis has been completely
unco-ordinated. What our studies show is that you can only go so far with
an authoritarian system, and this is now clear in what is happening. Take
Taiwan: it has a lot more political pluralism than most other east Asian
countries, and it is riding out the storm a lot better."