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Asia: Will Stricken States Ever Rise Again?

Prague, 19 May 1998 (RFE/RL) -- Indonesia is ablaze both politically and physically. As rioters opposed to President Suharto torch buildings in the cities, fires deliberately lit by business interests have consumed the Indonesian jungles, blanketing South East Asia in a pall of smoke reaching as far as Thailand.

The fires of Indonesia, fueled by anger, frustration and greed, are inescapably a symbol of the calamity which has suddenly overtaken the former Asian "miracle" states. Perhaps not only the jungles are disappearing, perhaps also the region's economic miracle is blowing away forever with the smoke and ash.

For the transition states of Europe and Central Asia, the rise and fall of South East Asia provides many important clues on what to avoid in the next two decades.

To form an opinion on whether prosperity will return to South East Asia in future, one has to ponder the past, the conditions which led to the spectacular rise of those countries.

Looking at Malaysia, Thailand, Indonesia, the Philippines and further east to South Korea, there are certain common elements of recent history. One is that with the rise of communism in the region after World War Two they became important to the west, particularly to the United States, as bastions against the spread of Marxism southwards. Most of them at the time were colonies or former colonies of the western powers, and some, like Malaysia, had their own communist insurgencies to overcome.

The Western geo-political interest in the region, coupled with the resurgence of Japan, a U.S. ally, as the regional economic giant, continued through the 1950s to the 1970s. It brought with it investment, technological know-how, and a window into Western capitalist business methodology. In effect it provided a ladder to climb towards prosperity. And they climbed this ladder, using their own skills and inherent social characteristics collectively known as Asian values, virtues such as thrift and hard work.

But any student of history knows that success carries with it the seeds of its own decline. As the tree of success grows and flourishes, noxious plants of corruption and decay grow in its shadow. Society must continually weed out these plants to prevent the tree itself being strangled. This the Asian states failed to do.

Investment which was in the early years directed towards productive goals like establishing manufacturing ventures to answer market demand became in time more and more speculative and careless. For instance, in Thailand and Malaysia bubble-like property booms led to the frenzied construction of tens of thousands of luxury office spaces which no-one rented. Finance houses borrowed huge sums of money cheaply on the Japanese market, then lend it out indiscriminately at home at higher rates. Foreigners, looking for quick profit, poured money into the region without thought of the risk.

Then the party ended. Now, after the financial crash, some basic contours of the situation are visible. Writing recently in the London Review of Books, author Benedict Anderson says that one salient feature is that South East and East Asia is no longer important as an ideological frontier. Despite the presence of China, the political threat of Marxist expansion is gone. The Americans have correspondingly reduced their presence and their interest. And its clear that although local elites grew fabulously rich during the good years, the leaders of the region neglected to maximize opportunities for the general good. Anderson points out that education -- one of the key ingredients of long-term economic success -- has been badly neglected. In Thailand for instance, an estimated 70 percent of the labor force still has only a primary education. The Philippines and Malaysia also have miserable education systems, and have suffered brain-drains. Industrially-oriented systems of vocational training are absent.

Through the years the foreign companies investing in the region had no interest in promoting skills beyond those which they needed for their own immediate purposes. The exception is South Korea, which used the opportunity provided by Cold War rivalry and foreign money to build an industrial society producing world-class goods. As a result, it is in the best position to make a full recovery. Apart from education, two other important indicators for long-term economic success are quality of investment policies, and environmental sustainability. Anderson writes that on both those scores the Asians do pretty badly. Indonesia's President Suharto, his power dimming, said recently that he does not believe growth rates will ever recover completely. In that at least, he may be right. With the future uncertain for the South East Asians, and with Japan still enmeshed in its own economic problems, space is created for China to play the heightened role that its size deserves.

For the transition economies of Europe and Asia, a lesson from all this is that the creation of market systems must be carried through completely. The Asians failed to adopt the transparency and accountability which make the system work in the West. In the transition economies, half-hearted reform must not be allowed to create edifices which are likewise destined to be crippled.