Asian capitalism can give the West a few lessons

Bangkok Post

The United State and European countries, powerful nations for such a long time, are now grappling with the economic downturn arising from the financial crisis.

Moreover, there are signs that economic momentum has already shifted gradually to many emerging countries.

For instance, Arvind Subramanian last year found that the US and Western countries dominated the global economy in the 1870s. In 1973, Japan replaced German as the world’s second-largest economy.

Then in 2010, China overtook Japan, with the US was still leading the way. However, it is expected

that China will become the world’s largest economy in 2030, with the US in second place and India in third _ the European nations will have fallen further by then.

Recently, Asian countries have been playing an increasingly important role in the world economy, especially China, India, Singapore, and South Korea.

The International Monetary Fund forecasts that South Korea will become the world’s 11th-largest economy in 2016, moving up from its 2010 ranking of 15th.

What is behind the region’s rapid growth and increasing importance as a driver of the global economy?

Kishore Mahbubani was quoted in the Financial Times as saying it was because Asian-style capitalism has provided better results than Western capitalism. The West must learn from Asia in order to survive the current economic downturn.

What is Asian-style capitalism? What lessons does Mr. Mahbubani believe it has for the West?

First, Asian countries’ governments don’t believe that free markets always provide the best solutions for economic problems.

Policy makers in Asia are willing, more than in Western countries, to intervene directly to change the direction of their economy. For example, industrial policy is set, while interest rates and exchange rates are controlled.

European countries see the free market as an ideological system they have to adhere to firmly. Their governments believe market forces are better and smarter than government regulations, so they let the invisible hand of the market run their economy and have few regulations.

On the other hand, Asian countries believe market forces are just part of many tools to improve the quality of life of their people.

For them, the market is not something that cannot be intervened with, and the government will use other policy tools if they can provide better outcomes.

Asian governments also believe that capitalism works better when it is regulated and supervised closely by the government.

Mr. Mahbubani suggests Western countries embrace Asian’s attitude, which focuses on outcomes and gives the government more power to intervene their economic system, instead of letting the market handle everything.

Second, Asian-style capitalism pays more attention to protecting labour than Western-style capitalism. Asian governments try to take care of unemployment problems by giving incentives to the business sector and supporting investment and employment.

But Western governments usually stay away from intervening with the market. When they face unemployment, policy makers try to let the market correct the problem itself, as they believe the market knows best.

When Asian countries face economic downturn, they do not fire a large number of employees and let the public sector take care of the unemployed. Instead the government and the public sector cooperate to find the best solutions that will keep employees in their jobs.

This means people continue to have purchasing power and are able to support the domestic economy for a while.

By not firing employees during a recession, companies gain more loyalty and trust from workers and so are able to retain skilled workers.

On the other hand, many firms in the US or European countries give high priority to stockholders, and so they usually decide to fire a large number of employees for the benefit of the company, letting the government worry about how to take care of the jobless.

For example, Delta airline fired 4,000 workers and USA Airways fired 1,700 workers when they were having problems because of high fuel prices.

Apart from these two reasons, Mr. Mahbubani observed that Asian countries’ economic policies pay more attention to the industrial sector than the service sector, and focus on investment instead of consumption.

Mr. Mahbubani’s observations are very interesting. However, there is no concrete evidence to prove that these reasons are the main cause of rapid economic growth in Asia.

If we consider Thailand, “Asian-style capitalism” has been implemented here too. We see that the Thai government usually intervenes in the economic system and does not let the market work freely. The government has also tried to help its labour force continue working during the recession.

However, Thailand is unique. Its system can be called “Thai-style capitalism”.

In Thailand, businessmen and politicians cooperate for their mutual benefits. They monopolise political power and maintain their political position to protect and seek their own benefit.

As a result, public policies that are good conceptually do not produce good outcomes for the people in practice.

If Thailand wants to go ahead and develop more than many countries in Asian, this problem of “Thai-style capitalism,” has to be dealt with first and foremost.

Kriengsak Chareonwongsak.
Senior Fellow at Harvard University?s Center of Business and Government.,?