Newsreal: America's Asian "Berlin Wall" has crumbled

Thanks largely to American Cold War politics, Asia has been fed a steady diet of undemocratic regimes and corrupt leaders. No wonder the current economic turmoil has been such a shock to their systems.

Published December 1, 1997 8:00PM (EST)

"Everything is going to be fine." That's the message that President Clinton has been urgently attempting to convey about the economic turmoil engulfing Asia. But is it? Last week, the 18-nation Asian Pacific Economic Cooperation summit endorsed a $78 billion International Monetary Fund rescue plan that will likely mean severe austerity for a number of economically troubled Asian nations.

Meanwhile, economic analysts have been at pains to assure us that Japan is not on the verge of an economic meltdown, despite the closing of the country's fourth-largest brokerage firm, Yamaichi Securities, and what appears to be a rather shaky banking system.

Salon spoke with Patrick Smith, author of the critically acclaimed "Japan: A Reinterpretation" published by Pantheon Books earlier this year. Smith, a former correspondent in Asia for the New York Times, the International Herald Tribune and the New Yorker says Asia's current turmoil is not temporary, and may be the beginning of a seismic regional shift that could take years to play itself out.

At last week's APEC summit, President Clinton referred to the turmoil in Asia as "a few little glitches" and then later seemed to be more serious about its implications. Which assessment do you think is the correct one?

I think it's a fundamental shift. It represents what the writer Robert Shaplen would have called "the turning of the wheel." Put another way, our Berlin Wall in Asia has fallen. It was a wall not made out of bricks but out of corrupt forms of capitalism and papier-mbchi democracies. Their leaders existed under glass for 50 years. They thought they were political leaders. They were not. They were redistributors of wealth and corruption and money changers, basically. And they were our clients; they were our satellites, with all that implied. What's happening now is that globalization has come to Asia, and the party's over.

How badly is the party going to end? There's talk of a new domino theory in Asia, in which the cycle of currency devaluations, bankruptcies and austerity measures sap the political strength of the countries involved. Is it that serious?

Yes, it is. The deal in Asia was always implicit: You get plenty to eat -- an attractive thing to Asians because poverty was so endemic for so many centuries -- and we run things. You don't get democracy, but you get a big bank account. That was the social contract. The problem was, to keep the deal going, high growth has to be maintained at all costs. During a recession, the public works projects in Malaysia and these countries were just flabbergasting. They pulled out all the stops because everybody had to work, everybody had to have a rising income, no matter whether the growth rate came from manufacturing, trade or public works spending. Now that the equilibrium that had to be maintained between political peace and economic growth is breaking down. The question now is: Where are these guys going to run to?

And where do you think that will be?

It's hard to predict. These economies are not going down the tubes, but they're going to have to absorb a lot of shock. One of the most important questions is political leadership. The way we ran Asia during the Cold War was not conducive to producing qualified leaders. Stability was the first priority, not democracy. Basically our attitude was that good, solid anti-communist thugs would do just fine. Look at (Indonesian President) Suharto. He's had to go to the International Monetary Fund for a bail-out, but he's not too pleased about it. He has the banks of his sons and daughters to think about.

You're saying the implications are more political than economic.

Yes. Over the long term, these countries will emerge from this either more authentically democratic, instead of just pretend-democratic, or they will be pronouncedly more authoritarian. And America will have a lot to answer for. I'm not one of these people that says it's all America's fault, but looking at this clearly and with a decent regard for history, a lot of this can be placed at our doorstep. A lot more than we're talking about in our newspapers, that's for sure.

Is Japan one of the dominoes?

No, it has much too much money in the bank. Japan is wealthy beyond
what we can imagine. The postal savings system there has something like $800 billion in it. At the same time, Japan is a quintessential case of what I'm talking about. There's a leadership vacuum because we never encouraged leadership to develop
after the war. You can't go on like that forever.

Do you think Japan will try to export its way out of economic
troubles and send a lot more goods America's way?

It's already started to do that, and who can blame them? And we
started all that after the war. We put a few strategic industries back together, we reconstructed the Ministry of Trade and Industry and said, "Here, export. It will make you strong." Since then, every recession has seen the Japanese export their way out it. They
are going to report a trade surplus with the United States worth $65 billion this year. That's a big number.

Meanwhile, America's trade gap gets ever wider. Are we going to see more friction between the U.S. and Japan?

We already are. In Vancouver, Clinton had a meeting with
(Japanese Prime Minister) Hashimoto and really barked at him. "Stop exporting and raise domestic demand," he said. But that's not very
realistic. The Japanese already consume their asses off. A friend of mine in Tokyo who was working for British Petroleum had a perfectly functioning Sony Trinitron color TV in his living room. He found it in a garbage heap at the end of the block. I think we assume an elasticity of demand in Japan that simply isn't there. They are closer to the limits of their consumption than we understand.

But their economy remains highly regulated. It's still difficult to get American companies and American goods into the country.

They've been cranking out the exports for a long
time, and by their experience, it hasn't exactly been an abject failure. They think, "The Americans are groaning? Well, hey,
they've been doing that for nearly 30 years. We know how to keep them in line. We'll just keep talking and keep the ball in the air." So it's difficult to expect overnight change.

What will it take for Japan to change?

None of the changes that we want to take place will
happen before there is a greater measure of democracy, and the
Japanese citizenry are able and informed enough to turn people out of office, to make choices politically and to manifest those choices publicly. That's not a short-term process. The (ruling) LDP (Liberal Democratic Party) is not going to take itself out of office because it judges it best for Japan. The bureaucracy is not going
to write new regulations and reduce its power. This comes down to popular preferences, and until they get the mechanisms to organize and articulate those preferences politically, Japan is going to be a problem nation.

Overall, how do you see Asia's economic turmoil affecting the U.S.?

Through markets, mostly. There'll be more Asian exports, and they're going to be cheaper. And the Asians are going to be buying less from Japan and less from us. Already economic
forecasters are predicting that three-quarters of a point could be shaved off the U.S. growth rate in 1998 because the Asians aren't going to be buying. That could be a big problem.

Is there an upside?

Yes. I think many Asian companies could begin to move away from
management styles and ownership philosophies that were based on family relationships -- a kind of pre-modern management, if you will. There could be more room for mergers and acquisitions, joint venture partnerships, shared equity and all those other 20th century ideas that even good, solid companies in Asia didn't want to have anything to do with. All those Confucian management practices could go, and that might be a good thing for American companies. On the equity side? Obviously, these markets are right down in the
basement now. A moment will surely arrive when it's time to buy stock.

Following on the domino theory analogy, is there light at the end of the economic turmoil tunnel for Asia?

It could go either way. Some other things have been unleashed here that are going to ripple through the economies and the politics of the region for a very long time. My point is that Asia can't stand still any longer. There are a lot of transitions coming. There could be a lot of violence.

But let's go
back to where we began. Our Berlin Wall has fallen. There's no more coddling these economies. They make mistakes; they pay for them. They're going into a different world, and they're going to have to decide: authority or democracy, primitive or modern, global or not. It will be an interesting period.

By Jonathan Broder

Jonathan Broder is Salon's Washington correspondent.

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