How the West misjudged Asia

Business Asia, Nov 2, 1998 by Maurice Daly

Western economic analysts horribly misjudged Asia's economic development and continue to take a myopic view of the region, according to Professor MAURICE DALY(*). He also offers a word of warning about China

In analysing Asia, a problem in Australia and the whole world is that economists have taken the high ground in explaining what is happening in the region.

The problem is that we did not understand Asia in richer terms. If you look at the halcyon days of Asia, there were three pillars as to why over three decades so many countries did so well.

First, the Asian economies were generally command economies. There was a very strong element of governments running the economy. Take Japan, which was the source of inspiration to other Asian countries. A lot of their post-war reconstruction was influenced by the USSR experience. So command economies were important.

Second, Asia more or less collectively built barriers to the outside world.

Countries pursued import-substitution policies. They blocked the entry of goods to build up their own industries--and they were successful.

The third pillar of the Asian surge was that they concentrated hugely on export markets. Particularly, they were happy to get market share rather than maximising their profits. Their game was to get into these markets and capture them.

Now, of those three pillars, most of the writings by economists emphasised just one--the export markets.

They didn't want to know about command economies, and import substitution was something that really didn't fit the thinking of the orthodox mainstream economic thrust.

As a result, there were a lot of mistakes made.

Even as late as May last year, bodies such as the International Monetary Fund, the World Bank and the Asian Development Bank were all saying Asia was basically in good shape.

All this is a product of one-dimensional looking at Asia. A lot of commentators couldn't believe they were so wrong. In a funny way it was predictable and (Professor) Mal Logan and I wrote a book in 1989 called "The Brittle Rim"--and the name implied our thinking that inevitably there was going to be a downturn. It took some years to come, but I think it was predictable.

One of the problems with the way the West has looked at Asia is the problem of reductionism. We have this concept that there is a place called "Asia"--and, of course, there is no place called Asia. It's a region. Asia is a massive, complex place--and the West reduced it.

We also tried to understand Asia through a medium of a few simple indices.

We got carried away with things like growth rates. In the long run, a lot of the information that we were looking at has been demonstrated to be wrong. So we not only reduced Asia down to a few measures, but those measures were incorrect.

The real future for Asia is not a one-path solution. And Asians being Asians, they will discover those many paths. There will be a distinct Asian revival in time, although I think the next few years will be terribly messy.

I believe Japan and Taiwan are best placed to return strongly. People have underestimated Japan's ability to recover.

But at the very bottom of the pile is China. China has been atrociously misunderstood. The opportunities have been exaggerated. There is the potential for a huge fallout there, rather than a bonanza. It seems to me that if you take all the things that were part of the breakdown in various countries in Asia and look at China, it has all those elements magnified.

China is generating one of the biggest streams of unemployed people the world has ever seen. And the data we get out of China about great growth rates is manifestly wrong.

One of the problems with the information coming out of Asia over the years is that a lot of it has come out of banks and similar organisations, which have a vested interest in viewing the world in a certain way. It's not independent. There's a crying need for more independent information--not just from China, but from all of Asia and Western analysts, too.

(*) Professor Daly is head of Daly Research Systems and the co-author, with Professor Mal Logan, of a new book called "Reconstructing Asia: The Economic Miracle That Never Was, The Future That Is". The text above is edited excerpts from a speech Professor Daly gave recently at a seminar hosted by the Research Institute for Asia and the Pacific.