Asian Values and the Asian Crisis
A mere decade ago, Americans at every level of business and government were being chided for their failure to emulate the example of Asia. The key to that region’s economic success was said to be its cultural values—a combination of the work ethic, respect for community and authority, and a tradition of paternalistic government—all of which were contrasted invidiously to the rampant dysfunctionality then plaguing the American economy and American society alike.
Today, as the International Monetary Fund (IMF) imposes Western, market-oriented rules on one desperate Asian country after another, the mood has shifted to the other extreme. Asian values, we are now told, are what led to nepotistic credit allocation, an overly meddlesome state, and a disastrous lack of transparency in financial transactions. From being the cause of Asia’s success, Asian values are now seen as the root of last summer’s currency crisis and of the ensuing economic meltdown across nearly the whole region.
Neither reading is correct.
The subject of Asian values emerged in the early 1990′s thanks largely to two politicians: Lee Kuan Yew, then Prime Minister of Singapore, and Prime Minister Mahathir Mohamad of Malaysia. Each was in pursuit of a relatively narrow agenda. Lee, seeking to improve his ties with China, hoped to gain favor in Beijing by promoting a mildly anti-Western sense of Chinese cultural identity. Mahathir, for his part, wanted to fend off the Bush administration’s push to create a forum known as Asia-Pacific Economic Cooperation, in favor of a new Asian political bloc that would exclude “white” powers like Australia and the United States.
But the idea of a distinct Asian cultural and political identity had a larger resonance as well. In part, it reflected the genuine pride felt by many people in the region at the stunning success of their economies over the previous two generations. It also, however, served the interests of states eager to shield themselves both from Western criticisms of their human-rights practices and from pressure to open their protected domestic markets to imports and foreign investment. To the “soft” authoritarian governments ruling Singapore, Malaysia, Indonesia, and increasingly the People’s Republic of China, “Asian values” offered an apparently principled defense of their reluctance to broaden political participation.
The idea of Asian values was, however, problematic from the start. As anyone knows who has spent time in that part of the world, there are huge cultural differences not only among the various countries but also among the ethnic groups that make up multicultural societies like Singapore and Malaysia. In southern China, families are both large and cohesive; in Japan, much less large and socially less significant. Whereas in Japan, South Korea, and Taiwan the state has traditionally commanded substantial respect, in many parts of Southeast Asia it has been historically weak or nonexistent. Confucian societies tend to invest more resources in education than do Islamic, Malay, or Catholic ones—indeed, Lee Kuan Yew was forced to pull back from his embrace of Confucianism for the simple reason that it did not reflect the cultural heritage of the 15 percent of Singapore’s population that is of Malay descent.
As for the relationship between Asian values and economic success, that is dubious at best. Not only have attitudes toward work and money varied tremendously from one part of Asia to another, but Asia as a whole was rightly regarded as an economic basket-case for much of the first half of the 20th century. As Max Weber pointed out in 1905, no Asian society had ever produced indigenous capitalist institutions; economic growth became possible only after contact with the West and with Western ideas of property rights, the rule of law, scientific rationalism, modern state institutions, and the like. To put it another way, economic growth was contingent on the rejection by Asians of important elements of their own cultural heritage, including the Mandarin disdain for commerce and physical labor.
This is not to say that Asian values did not also turn out to be economically valuable: the Confucian emphasis on education and meritocratic advancement, for example, happened to dovetail very nicely with the requirements of a modernizing society. But as in the case of the impoverished Asian immigrants who came to Canada and the United States and made a success there, those values could come into play only when combined with other values and institutions imported from the West.
Aside from inculcating good work habits, Asian values have also been said to have a political dimension. Thus, Lee and Mahathir have argued that their brand of authoritarian government is well-suited to Confucian traditions of hierarchy and enables the state to focus its resources on economic development while avoiding the high degree of social disorder characteristic of Western democracies.
Unfortunately, the alleged cultural fit between Asian values and authoritarian government is a matter more of convenience than of principle. In any old and complex cultural system—whether Confucianism or Christianity—it is possible to find sources legitimating totally contradictory practices. Historically, Christians reading the same Bible have both promoted and condemned slavery. Similarly, if Lee Kuan Yew can cite Confucian sources to support rule by benevolent authoritarianism, Taiwan’s Lee Teng-hui has cited other sources to prove the compatibility of Confucian tradition with the kind of democratic institutions he has sought to build in his island nation. All cultural systems evolve. Given the examples of Japan, South Korea, and Taiwan, who is to say that “Asian values” constitute an insuperable obstacle to the establishment of Western-style democracy?
Nor is the economic efficacy of authoritarian government clear-cut, as the careful studies of Robert Barro and others have shown. When such governments function well, as in the case of Singapore and of South Korea under military rule, they can indeed be very effective at promoting rapid growth; but when they function badly, like Brazil or Peru during the 1970′s, their economies tend to perform much more poorly than democracies.
It is true that Asian authoritarians have, on the whole, been more competent and honest than Latin American ones, but, as the current crisis already suggests, there can be no assurance this will continue to be the case over the long run. In the absence of adequate feedback mechanisms and institutional controls on state power, it ends up being a matter of luck whether authoritarian institutions are turned toward the single-minded pursuit of investment and growth or become vehicles for padding the bank accounts of the politicians in charge.
If Asian values are not the cause of either rapid growth or of a superior form of governance, are they, instead, a catalyst of excessive state intervention and “crony capitalism”? And if so, can they be blamed for the economic debacle that occurred in the wake of the collapse of the Thai baht and other regional currencies in the summer of 1997? Alas, in sickness as in health, Asia is a very diverse place, and the causes of crisis vary from country to country.
The trouble in Thailand began when the government’s efforts to defend the baht’s link to the dollar came under attack in international currency markets. But it was the very stability of that link that had encouraged private firms, in Thailand and abroad, to borrow and lend short-term funds to finance speculation in real estate and other questionable ventures. If there was failure at the government level, it lay not in excessive interventionism but in an insufficiency of regulatory power: the Thai state was unable to impose proper reporting, disclosure, and reserve requirements on its banking system. And if there has been longer-term failure at the government level, it is again one of omission rather than commission—a failure, that is, to invest adequately in public education and physical infrastructure.
The problem facing Thailand—overzealous speculative investment fueled by cheap credit—has been a feature of capitalist markets for as long as they have existed. Nor is Thailand alone in the region in this respect. Most Southeast Asian governments have opened their economies to foreign investment and trade, and some, like Singapore and Hong Kong, have been models of state minimalism in the economic realm—not that this has saved them from being buffeted in the global financial markets.
Of course, the crisis today is centered not in any of these places but in Japan and especially South Korea. In both countries, state agencies for the past 45 years have indeed played a hyperactive role in guiding economic life, primarily through the allocation of credit.
Intervening on both a macro- and microeconomic level, the Korean government protected domestic producers from foreign competition and created a government-industry machine that resembled a time bomb waiting to go off. The large Korean conglomerates known as chaebol became addicted to cheap, often subsidized credit for ambitious expansion projects. While these paid off during the country’s high-growth period from 1961 to 1987, the absence of constraints, either in the form of hard budgets or in the form of shareholder demands for a return on equity, led to spectacular mistakes, as in the 1996 decision by the Samsung conglomerate to become the sixth major Korean automobile manufacturer. The tremendous power vested in government also led to cases of massive corruption; former President Roh Tae Woo stole some $600 million, and politics played a role in the recent collapse of Hanbo Steel.
Japan’s sins are by now familiar: lack of openness, regulation, and transparency in the financial sector, coupled with a penchant for keeping faltering firms alive at all costs rather than letting managers and shareholders absorb the consequences of failure. All this has led to a rolling seven-year crisis in the banking system that has seriously weakened the country’s still-competitive manufacturing firms. As in the case of Korea, government intervention in markets has persisted long past the point where it makes economic sense.
But the fact that government intervention is no longer functional in places like Japan and South Korea does not mean that it served no purpose in the past. Although many American economists assert dogmatically that state intervention always produces inefficiencies, the fact is that these same meddlesome Asian governments presided over periods of growth that were historically unprecedented anywhere in the world. Perhaps one might argue that, in the absence of state intervention, Asian growth from 1950 to the 1990′s could have been even higher than it was; but to imagine that one period of unprecedentedly high growth should have yielded to another and even higher one is to indulge in fantasy.
Which brings us to the other frequently-named culprit for Asia’s present troubles, “crony capitalism.” If Northeast and Southeast Asia share a common failing, it is that business decisions are frequently made by other than market criteria. The entire region is permeated with personalistic ties of all sorts, ranging from the mutual obligations that Japanese managers feel toward their workers or their business-network (keiretsu) partners to the forthrightly corrupt dealings of Indonesia’s Suharto family. In Southeast Asia, family connections link the far-flung overseas Chinese communities; in Northeast Asia, there are long-term corporate alliances or informal connections between government overseers and the firms they ostensibly regulate.
Greater formality, based on the strict rule of law, is a pressing need everywhere in Asia. Nevertheless, “crony capitalism” is a misnomer. The term was initially coined to describe the Philippines under the late Ferdinand Marcos, a place where huge amounts of money were being siphoned off by the dictator’s close associates. Historically, despite exceptions like the Philippines, China, and Indonesia, East Asia boasted astonishingly low levels of corruption. In light of the huge regulatory powers vested in Japanese, Korean, and Taiwanese bureaucrats over the past two generations, one might reasonably have expected to see nepotism, influence-peddling, and stagnation in these countries on the level of, say, Mobutu’s Zaire. Instead, while major scandals have emerged over time, all three countries have demonstrated an ability to build strong, competent, and reasonably honest government institutions that can stimulate a high level of savings and direct them to productive investment.
No society can expect to keep this going forever, which is why formal institutions are critical in the long run. But few countries outside Asia have shown an ability to make “personalism” pay off so spectacularly even in the short run.
In any case, is it so obvious that “personalism” is always a bad thing? Ironically, business-school professors and information-technology gurus have been urging American firms to move in precisely that direction. In a sophisticated economy, we are told, work is done by highly educated professionals who must be allowed to organize themselves. To that end, American companies are being advised to replace their large, bureaucratic, hierarchical structures with smaller, flatter ones linked by informal networks. Many high-tech firms have also adopted a policy of “relational contracting,” basing their business decisions not on price and performance criteria but on relationships of trust with suppliers or with clients that resemble nothing so much as the Japanese keiretsu.
If Asian values are not central to the saga of Asia’s economic rise and recent decline, and will not, in and of themselves, determine the kind of political system that ultimately prevails in that part of the world, what, then, is their significance? The answer lies in the sphere of social relations.
Among all the criticisms of the West lodged by proponents of Asian values in the early 1980′s, the most cogent focused on the effects of excessive individualism in Western societies, and particularly in the United States. The concept of the autonomous individual as the ground of all rights and duties is indeed unique to the liberal West; it has no counterpart in Asia, where people are born into the world encumbered with a whole series of obligations to others, from the family to the state. This encumbrance can inhibit their ability to take advantage of the good things that we associate with individualism, like innovation and entrepreneurship; but it can also reduce their susceptibility to the bad things, like crime and illegitimacy.
How does this play out in practice? Many modern Asian societies have followed a completely different evolutionary path from Europe and North America. Beginning approximately in the mid-1960′s, virtually every country in the industrialized West experienced a rapid increase in crime rates and a breakdown in the nuclear family. The only two countries in the Organization for Economic Cooperation and Development not experiencing this disruption were the Asian ones, Japan and Korea.
Since the end of World War II, Japan has shown but a slightly rising divorce rate, while its rate of illegitimacy has been both low and flat, and its crime rate, already one of the lowest in the world, has trended slightly downward for the past three decades. Korea underwent a slight rise in crime in the 1970′s and has experienced periodic outbreaks of political violence, but there, too, very little social dysfunction has attended industrialization.
Similarly with the countries of Southeast Asia. As their per-capita income has risen, they have experienced declining rates of both divorce and illegitimacy. To be sure, traditional family structure has changed dramatically, as joint and multigenerational families have turned into nuclear ones; but the breakdown of the nuclear family that is so notable in the West has been all but absent.
Any number of factors may be adduced to explain why these social trends in Asia differ from those in the United States and other Western countries. But, from the perspective of “Asian values,” the most important difference—and the one that has yet to be confronted squarely—has to do with the role of women. Here, indeed, is an example of a social value with large effects both in economic life and in politics.
To a much greater extent than in the West, women in Japan and Korea, not to mention in other, less-developed Asian societies, continue to be treated differently from men both in social custom and in law. While female labor-force participation can be high, girls generally work only until they are married, and then drop out to raise families. Women across Asia are also less able to control their own reproductive cycles. Even in Japan, the pill was only recently made legally available.
Until recently, too, Japanese labor laws prohibited women from working double shifts in factories; they were thus effectively barred from the fabled lifetime-employment system of large Japanese corporations. And what has been true of Japan tends to be even truer in the more socially conservative parts of Asia: in one way or another, women are prevented from earning enough to support themselves and their children without a husband.
When Asian spokesmen (at least the male ones) say they do not like Western values, what they often mean is that they do not like Western sexual roles; the individualism that is problematic for them includes not only freewheeling political protest but freewheeling protest within the family. And no wonder: family structure has implications for education, for economic performance, for public safety, and for government investment in such things as crime prevention and health care. Through the selective application of “Asian values,” Asian societies have so far preserved the coherence of the nuclear family and have spared themselves the social disruption that has attended economic change in the West.
But what of the future? In the long run, there is no reason to think that the nations of Asia cannot resume, if at a slower pace, the trajectory they were on prior to last summer’s crisis. It is much less certain, however, that their economic and political institutions will be able to withstand the powerful forces of globalization. If they are to remain competitive, for example, the Japanese keiretsu and the Korean chaebol will have to undergo massive changes in the next decade. In Northeast Asia, the regulatory hand of the state will have to be relaxed; in Southeast Asia, in order to guarantee the soundness of the financial sector, it will have to be strengthened. All Asian countries will need to rethink the wisdom of pegging their currencies tightly to the U.S. dollar.
A likely result of these and other changes will be an erosion of Asia’s social distinctiveness, which is already under siege by a variety of factors. Fertility rates in Japan and Korea are far below replacement levels, and Japan in particular faces not only an older but a dramatically shrinking population. If the country wants to see some semblance of economic growth, it will have to expand its labor force, either through immigration or through allowing more women to work Caught between these two choices, many Japanese would, I suspect, opt for the latter. But this means that, over time, Japan too will begin to experience Western-style family disruption, and the social problems that grow out of it.
In short, what the current crisis will end up doing is to puncture the idea of Asian exceptionalism. The laws of economics have not been suspended in Asia; as the economies of the region catch up to the West, growth rates will slow and social problems will accumulate. And neither have the laws of politics: the well-documented correlation between stable democracy and a high level of development surely applies to a region where rising educational achievements and the complex nature of industrial or post-industrial societies will increasingly favor the rule of law and greater popular participation.
In order to get to the long run, however, we must first survive the short run. In the near term, most countries in Asia will face a severe challenge restructuring their economies without generating a political backlash, and all sorts of uncertainties may complicate the process of recovery. The likely future behavior of the PRC and North Korea is one such unknown. Another is the reaction in the United States. As Asia’s fallen tigers try to export their way back to health on the basis of depreciated currencies, America’s trade deficit will swell, increasing the pressure for protectionism already evident in the defeat of the Clinton administration’s effort to secure “fast-track” trade legislation. On top of all that, there has already been an upsurge of resentment against the IMF and the United States in Korea, Thailand, and other economically prostrate countries.
The remaining years of the 20th century thus promise to be difficult and eventful ones for people on both sides of the Pacific. It would be nice if, for the duration, we could be spared further lectures either about the special advantages or about the special deficiencies of Asian values.