Column: amthai economics
The United State and European countries which have been powerful nations for a long time are facing economic downturn from the economic crisis. Moreover, there are signs showing that economic momentum has already shifted gradually to many emerging countries. For example, Subramanian (2011) found that economic dominance in the 1870s was the U.S. and Western countries. In 1973, Japan replaced German in the second rank.
Then in 2010, China has risen and overtaken Japan and Western?countries, while the U.S. was still a leader. However, it is expected that China will become a leader in world economy soon in 2030 with the U.S. as the second and India as the third, when European countries step down. ?Recently, Asian countries have been playing more important role in the world economy especially China, India, Singapore, the world?s top-ranked country in many aspects, and South Korea which is forecasted by IMF that they will become the world’s 11th largest economy in 2016, better than ranked 15th in 2010.
What is the main cause of Asian countries? rapid economic growth and becoming the important part in driving the world economy?
Mahbubani (Financial Time, February 07, 2012) has answered this question that it is because the difference in economic system in which Asian-style capitalism has provided better results than Western capitalism. This is the lesson that Western world has to learn from Asia in order to survive in the current economic downturn.
What is Asian-style capitalism? How can it give lessons to Western world?
First, Asian countries? governments don?t believe that free market always provides the best answer in solving the economic problems
Policy makers in Asia are willing, more than Western countries, to intervene directly in economic system to change the direction of their economy. For example, industrial policy is set, interest rate and exchange rate is controlled. This is clearly seen from China. 75 percent of big Chinese companies are under government?s control which is increased from 50 percent in 2010 (Walter quoted in Kurlantzick, 2011).
European countries see market mechanism as an ideology they have to hold firmly. Their governments believe that market mechanism is better and smarter than government regulations, so that they let invisible hands rule their economy and have only few regulations.
On the other hand, Asian countries believe that market mechanism is just only one of many tools to improve quality of life of their people. Market mechanism is not something that can?t change. The government could use other policy tools if it could provide better outcomes. They also believe that capitalism will be working better when it is regulated and supervised closely by the government. Therefore, Mahbubani suggested that Western countries should embrace Asian?s attitude which focuses on outcomes and gives the government more power to intervene their economic system, not just let market mechanism handle everything.
Second, Asian-style capitalism pays more attention in protecting labors than Western-style capitalism
Asian governments try to take care of unemployment problems by giving incentives to business sector and supporting investment and employment. But Western governments usually deny intervening the market. Whenever they are facing unemployment problem, the policy makers believe that market mechanism knows best, so they let it solve the problem itself.
When Asian countries face economic downturn, they do not fire a great number of employees and let the public sector take care of the unemployed. But the government and the public sector would help each other to find the best solution to keep hiring the employees.
It means that people still have purchasing power and they are able to support the domestic economy for a while. Because of not firing employees in the recession, the company gain more loyalty and trust from workers thus is able to keep skilled workers.
On the other hand, many firms in the USA or European countries give high priority to stock holders, so they normally decide to fire a lot of workers for the benefit of the company and then throw the problem to the government instead. For example, Delta airline fired 4,000 workers and USA Airways fired 1,700 workers when they were encountering the economic downturn caused by high fuel price.
Apart from these two reasons mentioned earlier, Mahbubani observed that Asian countries? economic policies pay more attention to industrial sector than service sector, and focus on promoting investment than consumption. Mahbubani?s observation is very interesting. However, there is no concrete evidence to prove that the explained reasons are the main cause of rapid economic growth in Asia. It might come from other reasons.
If we consider Thailand, ?Asian-style capitalism? has been implemented too. We can see that Thai government usually intervenes economic system and does not let market mechanism work freely. The government has tried to help their labor to continue working even in the recession. However, Thailand has a unique characteristic or it can be called ?Thai style capitalism?. In Thailand, businessmen and politicians have cooperated for their mutual benefits. They have monopolized political power and maintained their political position in order to protect and seek their own benefit which is large and easy to gain. As a restult, good public policies which are good conceptually cannot bring good outcomes for people in practice. If Thailand wants to go ahead and develop further than ever and more than many countries in Asian, this problem, ?Thai style capitalism?, has to be dealt with first and foremost.