Newsweek 21 July 1997
The Handover of Hong Kong has led to a wave of Asian pride. Fine; but beware hubris
By Gerald Segal
THE HANDOVER OF HONGKONG to China on July I stimulated a virulent strain of East Asian hubris. Westerners were told they would now feel an inch shorter, while Chinese would feel an inch taller. True, Asians might have good reason to be pleased with the end of European colonialism; but their swaggering pride may well blind them to the challenges ahead.
The recent economic success of East Asian economies is remarkable, albeit, no more miraculous than the earlier record of the Atlantic economies. Asian chauvinists, like those in 19thcentury Europe, ascribe success to a supposedly distinctive set of values. Such values are supposed to ensure that Asians can avoid the problems that now slow the growth of the Atlantic world. But Asian hubris clouds a crucial lesson -values and policies must morph as economic progress brings social and political change. Just as there were distinctive values at a certain stage in the Victorian Atlantic world, so there are currently 'valuable' values in Asia. But there is no such thing as an immutable set of Asian Values.
Asians with open minds can detect the need for change. Consider those politicians in Thailand and financiers around the region who assured us that the Thai bubble economy would not burst. They implied that Asians had distinctive ways to resist the power of the billions of dollars in global financial markets that earlier this decade forced economic reforms in Mexico and devaluation in Britain. But on July 2 the Thais conceded defeat to the global market and let their currency float.
The perils of hubris are now well understood in once bubbly Japan -a country that in recent years has grown even more slowly than Britain. In 1995 Japan's economy stood on the brink of a major financial crisis before a deal was done with the United States to devalue the yen and strengthen the dollar. We now hear little about Japan's unique recipe for unending economic success. The supposedly unstoppable Asian economic miracle juddered when trade growth in 1996 slowed to merely half the rate of GDP growth (it was twice GDP growth in 1995). Outside Japan, Asia's share of world stock-market capitalization fell in the last 12 months and now stands at less than 8 percent. Argentina and Poland are growing faster than Taiwan and Thailand. Singapore's recent downturn reminds the arch exponents of Asian Values just how vulnerable they are even to minor shifts in the global economy. A stuttering South Korea and jitters in Malaysia and Indonesia are all warnings that Asians, like the rest of us, have to adapt to new challenges if prosperity is to be sustained.
The most powerful challenge to East Asian economies comes from the need to develop innovative talents to fuel success in the postindustrial world. In the new economy profits increasingly depend on such things as the good management of healthcare costs. Future success is more likely to come from smarter software for robots than from a cowed and docile work force.
East Asian economies are moving beyond bashing steel and plugging in computer chips on assembly lines. Asians should worry that all the world's best management schools are in the United States and Europe. They should he even more concerned that the World Wide Web was invented in Europe and that the Microsofts and Netscapes of the world come from the United States. East Asia's young student talent mostly travels to and stays in the United States and Europe. More than 90 percent of the 100,000 "best and brightest" Chinese students who went in recent years to the United States have chosen to stay there.
The lessons for the countries of East Asia seem obvious. If they want to innovate, they will need to become more open and democratic societies. Innovation comes from a mind trained to be skeptical. Japan and even Singapore now realize their education systems are not turning out cutting edge thinkers. Ironically, just as some Americans and Europeans are looking at the alleged virtues of Asian education systems, the more farsighted East Asians want to learn from the Atlantic world how to build creativity. Such people realize that because of declining population-growth rates, economic success in the future will require the empowerment of the female half of their population. As a result, allegedly "Asian" family values are changing.
China, as the largest Fast Asian economy, is at an earlier stage of development and still believes it can thrive through authoritarian values. It foolishly thinks that the South Korean model-with a handful of huge, virtually state-owned industries will allow it to resist the power of the global market. But the basis of China's economic success remains fragile; and despite the hype, China offers some of the lowest rates of return for foreign investors anywhere in the developing world. It is far from clear that without far-reaching liberalization China will be competitive in the global economy.
In fact, East Asians could do worse than watch the quiet Indian success story. The previously paltry "Hindu rate of growth" has been replaced by a turbo-charged 7 percent - now easily above the average in Southeast Asia. Quietly, and without Asian hubris, India is now attracting more non-Asian foreign investment than China. Might it be that India, with its raucous democracy and robust rule of law, is better placed than other Asian countries to sustain success in the information revolution and a rapidly changing global economy?
SEGAL is a senior fellow at the International Institute for Strategic Studies in London.