Why the interest in an "Asia Model" is dangerous

The Asian model is more of a fantasy

By Chang Noi

The west is looking east. The east should look out.

Not so long ago, Asia looked to Europe and the US to learn about economic development. Now some Europeans and Americans argue that the "Asia Model" may be the cure for the western recession.

Should we be flattered by this reversal? Actually, no. We are in deep trouble.

The western economies slowed down in the 1970s after the oil crisis. Now they cannot seem to get going again. For many years, the business lobby argued that the problem was too much government. High taxes reduced business investment. Lavish social security schemes made workers lazy. Too many regulations hamstrung enterprise.

Political leaders like Reagan and Thatcher played to this mood. They reduced taxes on companies and on the rich to encourage investment. They cut back welfare schemes. They justified their policies with new theories of "supply-side" economics which said less government intervention would end the recession.

But it didn’t work. The recession went on. Thatcher was ditched. Reagan’s successor was defeated. Supply-side economics was discredited as shallow nonsense.

This is the background to the rise of the Asia Model. The arguments brought out to back the Asia Model are - surprise, surprise - the same that were once used to justify the supply-side theory. Asian economies are booming because they have less tax, less social security, less regulation.

After the Asem meeting, a US-owned magazine instructed the Europeans to learn from the Asian example: "Asian savings rates provide a pool of investment funds while European social security and other welfare programmes discourage work and risk-taking and even threaten to ruin national finances... Economic policy in Asia remains overwhelmingly aimed at promoting growth. In Europe, redistribution and industrial policy often seem top of the agenda."

Now of course it is true that most Asian boom economies have less tax, less social security, less regulation than the advanced countries of USA and western Europe. But it is not true that Asian economies are booming because they have less tax, social security, regulation. (And probably even less true that western countries would escape recession by reducing tax, social security and regulation).

The fact is: the conservative business lobby in the west would like to reduce tax, social security and regulation because that would increase profits. For a time, this lobby persuaded some governments to agree under the shabby cover of supply-side economics. Now it is trying again with the Asia Model.

Why is this so dangerous for us?

First, because we are in danger of believing this Asia Model. Such ideas find their way into economics textbooks, from there into the heads of students who go to study in the west, and from there into policies. They may also shape the actions of the international bodies which regulate the international economy.

Second, because these ideas are just as attractive to businessmen here as they are in the west. The Asia Model suggests that governments can help growth by doing as little as possible. It argues that it is a mistake for governments to pay attention to things like income distribution or social security. These arguments appeal to businessmen here. And to many economists, journalists and technocrats too. Some have criticised the NESDB’s Eighth Plan for trying to balance economic growth and greater social equity. The NESDB, they contend, should stick to growth. A local magazine added that NESDB should leave the job of having a social conscience to the Buddhist Sangha.

Third, because the Asia Model is two parts truth and three parts pure fantasy. And such fantasies make it more difficult for us to study what is really happening in the Asian boom economies. Thailand can learn a lot from countries like Singapore, Korea, Taiwan which got onto the escalator of rapid growth a few years ahead of us.

Fourth, because these countries did not concentrate solely on growth and let social matters look after themselves. Rather, they recognised that very rapid growth leads to very drastic and destabilising social changes. These social changes, if they are not managed well, can result in political explosions which wreck growth. The world is full of case studies of this pattern - including several Latin American countries, Nigeria, and the Philippines.

Being an economic shooting star for a few years is not so difficult. Sustaining growth depends on how well the resulting strains are managed.

The governments in the successful Asian boom economies do not concentrate only on promoting economic growth. Japan spends a fortune on subsidies which close the gap between rural and urban incomes. Singapore has possibly the most elaborate social security system in the world. Western countries are now studying it. After the first spurt of industrial growth, Korea’s planners made it a priority to reverse the widening gap between rich and poor. Through sensitive social policies, Korea went from being one of the most unequal to one of the most equal societies in a handful of years.

These countries invest expertise and resources in preventing growth leading to social division.

So we have a choice. We can learn from the experience of our Asian neighbours. Or we can be fooled by the conservative western fantasy of an Asia model in which business booms because government leaves the society alone.

Chang Noi says: don’t be fooled by the Asia Model. The strains in our society are too obvious. We need to manage them well.

Source : The Nation , April 27, 1996