The East Asian Model
The World Economic Forum (WEF) Annual Meeting every year presents a unique platform for world leaders, entrepreneurs, thinkers, scientists, etc for presenting their opinion on national and global issues. The Davos moot allows them to make a presentation like no other forum in an informal atmosphere does to an audience comprising of Heads of States and Governments, politicians (active and retired), international journalists, leading international businessmen, renowned academics and scholars — the list of luminaries is endless. Diverse people ranging from President Mandela of South Africa, US Vice President Al Gore, Chancellor Schroeder of Germany etc to Ted Turner of CNN, former US Secretary of State Henry Kissinger, etc participated fully. Addressing such a distinguished gathering is in itself a once in a lifetime opportunity and it is for this reason that countries in the world ensure representation at the highest possible level in Davos.
One of the most stimulating and interesting addresses was by Mr. Wang Daohan, Senior Advisor, Foundation for International Strategic Studies, People’s Republic of China, his topic being “Economic Globalisation and the East Asian Model”. He spoke in great length, identifying the effects, both good and bad which are being witnessed all over the world. Economic globalisation is an objective process in today’s world and a new historical period of economic socialisation and internationalisation under modern hi-tech conditions. Tracing back the process of economic globalisation, he said that cross border economic development and internationalisation date back to a century or more while the process of economic globalisation really began after the Second World War and has continued to gather momentum over the past 50 years, accelerating after the collapse of the Soviet Union. With the increase of trade and investment among developed countries various international economic regimes began to form, multinational companies became engines of world economic growth, a large number of developing countries entered the international economic system and different economies grew mutually-infiltrating and interdependent, converging with one another. In spite of this, because of historical reasons, the transition from planned economy to market economy has just started. The economic aggregates of the developing countries only represent a small amount in world economy, one of the responsible factors being the non-development of the information technology sector. With the beginning of the 1990s economics and international politics have undergone historical changes, this has resulted in an accelerated development towards economic globalisation. Information technology has greatly helped in promoting the global flow of capital and technology transfer, changing the pattern of economic cycles. Today, economic globalisation has become a powerful trend of the times.
According to Mr. Wang Daohan, economic globalisation is highly conducive to world economic development as it brings along a high rate of growth in international trade, enabling balanced supply and demand in international trade on a larger scale, conducing the flow of production factors to low-cost developing countries thereby promoting the emergence of new capital markets. In a period of just seven years from 1990 to 1997, the international inflow of capital into developing countries registered a 5-fold increase with an average annual volume of US$ 265 billion, this in turn greatly increasing the vitality and opportunity in world economic growth. Despite this seemingly rosy picture there have been some negative trends also, a widening of wealth disparity throughout the world and the instability of emerging markets having a negative effect on the developed countries. Unless a combined effort by the international community is made to determine whether the rules of the game are just or not things will not improve. The major imbalance in wealth disparities could lead to serious social upheaval, an example is seen in Indonesia. Trade and investment liberalisation and internationalisation of macro-economic regulation and control are essential requirements if a sound relationship between States and market is desired. While international economic organisations urge developing countries to speed up their liberalisation, most international economic organisations and developed countries have shown a relaxation of their supervision and regulations over international mobile funds, thus ignoring their not only moral responsibility towards the poor but their conscience in “beggaring” entire nations in order to provide profit for a handful of currency speculators. The financial debts owed by the developed countries runs into trillions of US Dollars and in the present circumstances where there is irrational economic structure, inadequate financial system and a high foreign debt burden there is risk of an outbreak of financial crisis in a number of such countries. This will lead to social unrest, hence the developed countries should take up the responsibility to not only prevent but to check the excessive speculation of international capital and the irrational fluctuation of financial markets.
All contradictions which developing countries were facing was brought into sharp focus by the East Asian financial crisis. In some of the crisis afflicted countries, their GDP dropped by 5-10%, their currency devalued by as much as 30-50%, their debts inflated several times over with social crises and even political turmoil emerging in some countries. This crisis has resulted in debates by public opinion leaders on the East Asian Development Model and whether this model can maintain its vitality and effective operation in the globalisation process. Mr. Wang was of the view that “various structural problems of the East Asian Model have slowly surfaced: undue intervention by governments into the market mechanism, conflicts between incompetence in international competition and over rapid opening of domestic markets, between rapid growth and relatively slow structural readjustment and between increase of labour cost and inadequate input in science and technology, etc.”
Nevertheless, viewed in the context of development achieved in the last 30 years there is no doubt that the East Asian Model is efficient and dynamic with the East Asian economy accounting for over one-third of the world economic aggregates, as a whole East Asia has registered the highest-ever growth rate since the Industrial Revolution. Many East Asian governments have rushed in to help their neighbouring countries creating an environment, both internal and external which were necessary for development. Though Mr. Wang Daohan did not state so, one reason for stabilising the situation was China’s refusal to devalue their currency. East Asian countries have been able to fully exploit their low labour costs for the speedy development of manufacturing and producing sectors which further opens up their markets to the world. The East Asian Model is a very special way towards modernisation and can be effectively used by the less advanced developing countries for maximum benefit. To make the East Asian Model more vital and successful certain measures must be taken at government and private levels viz indirect governmental regulation and control can be maintained and an increased input in science and technology by government and other enterprises. Countries must take precaution against financial risks both within the area and from outside as well while strengthening co-ordination of economic policies among countries and ensuring greater co-operation in currency exchange rate mechanism. Today’s crisis is but a temporary situation.
Mr. Lee Kuan Yew, Senior Minister of Singapore agreed with Mr. Daohan, recognizing that while today it is in a crisis, Japan is the real Role Model for East Asian countries. Japan has experienced an explosion in its economic development, this has come about because in the aftermath of the Plaza Accord of the 1980s, Japanese companies relocated their factories solely due to the Yen’s strength as a viable currency. European and American multinationals then started to come in with new investment which proved to be the greatest economic boom to Japan. He said that in order to restore confidence it is incumbent upon the affected East Asian countries to take up reforms in a pragmatic manner including cleaning up their banks and introducing bankruptcy laws. Investing in human resources is the key to success and as Mr. Lee put it “those who have invested in human resources will emerge as winners in the future”.
Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.
Comments
No comments yet.
Leave a comment