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Economics: Fundamental Changes Will Take Time

  • Robert Lyle

Washington, 16 April 1998 (RFE/RL) -- World Bank President James Wolfensohn's message was a familiar one -- countries undergoing a complete change in the very nature of their economies cannot expect to have the job done "in five minutes."

Wolfensohn made the comments at a press conference in Washington Wednesday. He didnt draw a parallel with the countries in transition from central planning to markets, but he made clear the changes now going on in South Korea, Thailand and Indonesia are in many ways nearly as fundamental to them.

While they have long been capitalist economies based on markets, Wolfensohn says, these one-time Asian tigers were fundamentally different from the countries of Western Europe or North America.

For one thing, their economies were essentially familial. Business relationships were all based on family and it was the family unit that provided social services. None of those countries had unemployment insurance or any kind of public support for anyone in need because individual families were expected to provide that.

Even employment relationships were like a family -- once hired, a worker would never be dismissed or thrown out of the "work family."

Additionally, this familial type of society was very secretive. Information was never made available readily.

Wolfensohn, who for years ran his own investment banking firm, says he had been going to Asia for decades "and one thing I learned is you don't ask (Asians) about their balance sheet or their income statements or their financial positions because they'd never tell you."

This approach to financial, banking, and business relationships is antithetical to normal western practice, says Wolfensohn. But in those Asian societies people simply did not share that kind of detailed financial information personally, corporately, or as part of the banking system.

It was a system based on honor and family, where economic and business ties and deals were consummated on the basis of a hand-shake and virtually no exchange of real economic or financial data.

While this system worked well when Asia remained somewhat isolated, the advent of the global economy, and the instantaneous flow of information that is at its core, greatly weakened the system and contributed to its collapse.

Wolfensohn says it is now the governments of these Asian nations which are pushing the change because they've realized that in a global economy, they must adopt global standards. "It's because they can no longer live in an isolated way," he says.

To be sure, says Wolfensohn, there will be a "kick-back" when things begin to improve and the old strong families and groups will say 'let's go back to our old ways." But, he says, that is unlikely to happen because of the integration of global markets that has already taken place.

IMF Managing Director Michael Camdessus notes that Korean President Kim Dae-jung has said that the financial crisis forcing these changes may well turn out to have been a "blessing in disguise." That's because, he says, it has forced them to adopt changes that many there have long known would have to come one day.

Wolfensohn says that is why it's going to take two to three years for these one bustling economies to get back on track. "You can't reorganize the 11th largest economy in the world, Korea, in five minutes," he says. "You cannot reorganize Indonesia in five minutes. How can you?" There are no instant fixes.

Social systems require underpinnings so that there is adequate food and medical supplies and there is no social strife as you reorganize the economy, he says. All of that takes time.

Camdessus says Korea especially has thrown itself "120 percent" into the reforms and as a result may experience a quicker recovery. But he added earlier this week, there is still a long road ahead for any country which undertakes such fundamental reforms.