East Asian myths

There are less than 1,500 days before the Pacific century-a century, we are told, which will be dominated by the economies and societies of Asian Pacific countries. Europeans have had their century or two of power; Americans might just be able to hang on for a bit longer if they turn their attention to their Pacific prospects.

Sounds silly? Well, partly. There will be no such thing as a Pacific century; but what is taking place in east Asia has important implications for Britain and the rest of the world. Europe and east Asia had their first-ever summit meeting in Bangkok in March which suggests, if nothing else, that Europeans are moved by this new challenge.

The Pacific century argument is based on impressive statistics. Many east Asian states have achieved rates of growth two and three times those of European or North American countries at equivalent stages of development. The combined GDP of east Asia now accounts for roughly one third of world GDP. The world economy is now divided between three main poles: east Asia, North America and Europe.



HOW NEW IS THE PACIFIC century?

But the Pacific century argument is built on several half truths and dubious assumptions. First, "thinking Pacific" is hardly new. The idea of a Pacific century was first touted by William Seward, the mid-19th century American secretary of state who bought Alaska from Russia. By the end of the 19th century, the states of Asia accounted for one third of world GDP-the same as today. The 20th century, far from being the Pacific century, was an American century or, rather, another version of a western century. Pacific euphoria began to grow again as the cold war came to an end and people searched for a new image to describe the future international order. But just as the notion of east Asian supremacy began to acquire popular appeal, voices began to warn that eastern growth had its limits. When Bill Emmott (now editor of The Economist) wrote The Sun Also Sets in 1988, he was dismissed as a myopic European. His thesis-that there was no Japanese miracle and that Japan was heading for slower growth and problems similar to those of other mature economies-now looks farsighted as the Japanese economic bubble bursts: for the last four years Britain's economy has grown faster than that of Japan.

WHERE IS THE PACIFIC?

The second dubious assumption is that "the Pacific" describes something useful. Because the Pacific ocean is the world's largest (twice the size of the Atlantic), there is no obvious reason to join its two sides. Some 80 per cent of Latin America lies east of Boston; and London is closer to the main cities of east Asia than any big North American city. The Americas are ethnically and culturally overwhelmingly European in origin. Today, the largest wave of migration into the US is Hispanic and we are unlikely to see an appreciable change in the balance between European and Asian populations in North America.

In historical and cultural terms, "the Pacific" has little meaning; the same is true of east Asia and even Asia. The word Asia is of Assyrian origin; it means "sunrise, east." The inhabitants of Asia have never constituted a single unit: they have never defined themselves as part of a single entity. Their self-consciousness as "Asians" or "east Asians" was given to them by Europeans. As any student of Hinduism, Shintoism or Confucianism knows, there is no cultural unity among Asians. There are no shared languages or even a language group that links more than a handful of modern states in the region. As Francis Fukuyama has noted, the methods of social and economic organisation are fundamentally different across Asia. The most prominent fault line is that between the family oriented networks of the Chinese and the broader hierarchies of Japan or Korea.

If there is nothing usefully described as "Asia," then there can be no such thing as "Asian values" either. True, many east Asians work hard, save a great deal and care about family and education. But so did the Victorians. Such practices (they are not values) change with modernisation and greater wealth. They changed in the post-Victorian world and they are changing now in the richer parts of east Asia. The fact that we hear so much about Asian values has something to do with the fact that these are changing rapidly-and authoritarian regimes would rather they did not. Remember how it used to be claimed that east Asians did not need or want democracy? But after a generation or two of economic pluralism, political pluralism has inexorably followed. Japanese, South Koreans, Taiwanese, even the people of Hong Kong no longer claim that there are Asian values which transcend democracy.

East Asia has not had a historical experience comparable with the Enlightenment. These societies are still in the early stages of deciding what the proper balance between individual and collective interests should be; they have not even begun to deal with issues such as equality for women. Japan, the most developed state in east Asia, still bans the contraceptive pill and has the highest rate of abortion in the world (400,000 per year).

Is there an Asian economic miracle?

Now to the third dubious assumption: the notion that there is an east Asian economic miracle. Paul Krugman, America's wonder-kid economist from Stanford University, dared to suggest in an article in Foreign Affairs that there is nothing "miraculous" about the fast growth of some east Asian economies. A "miracle" suggests something unique and beyond reason; but Krugman argues that the Asian success has been due more to "perspiration than inspiration." His comparison between Singapore and the Soviet Union has enraged the free marketeers of east Asia. Yet Krugman was simply pointing out that like the Soviet Union in the 1950s and 1960s, Singapore has achieved remarkable growth by enlarging and educating its work force and by saving and investing a great deal. Unlike the former Soviet Union, Singapore made wise investments and thrived on open markets. Krugman notes that the ability of Singapore and other east Asian countries to sustain their growth depends on their ability to innovate in the future. He believes that east Asian countries have so far failed to make much progress in developing the kinds of improved management skills or cutting edge innovative technology that will allow them to compete once they have finished mobilising and educating their population (and have passed their peak of savings). As Krugman says, South Koreans will need two PhDs each before they reach the level of innovative factor productivity of the US.

The impact of the Krugman thesis was all the greater because just as it appeared, it was beginning to dawn on the Japanese-previously the chief boosters of the Pacific century and deriders of "Eurosclerosis"-that their economic boom had bust. If Japan was to be the lead goose in the "flying geese" pattern of economic growth in east Asia, then east Asians were in trouble. Financial crisis, the need to find a social welfare system to cope with an ageing population twice the size of Europe's and the need to satisfy more consumer than corporate interests are only the most obvious challenges facing Japan today. It is likely that the Japanese economy will grow again, but at the rate of other mature economies in Europe and North America.

The coming chinese supremacy?

Disappointed by Japan, the new wave of Pacific boosters are banking on the Confucian world of China and the overseas Chinese. Here we come to the fourth dubious assumption: that China and the Chinese are bound to lead. It is an odd assumption because Confucianism used to be invoked to explain why China has been an economic basket case for much of the 20th century. But since China began its economic reforms in earnest in 1980, it has averaged a 10 per cent annual growth rate. As Krugman might argue, there is nothing special so far-only the usual patterns of mobilising labourers from the countryside and putting them to work more productively in the cities. There are high savings rates, as well as government and foreign investment; but there is no sharp increase in total factor productivity-hence "perspiration" rather than "inspiration."

The Chinese economy was in such bad shape before the reforms that sensible and sustained policies of market economics are bound to yield results. There will be nothing miraculous about a Chinese annual economic growth of 7 to 10 per cent throughout the next decade. If the Chinese keep it up for 20 years, their economy will be 80 per cent the size of that of the US-not so unusual for a country with a population five times larger. But in the Chinese case, the analogy with the Soviet Union is even more appropriate than in the case of Singapore. China has to meet the challenge of privatising its dinosaur-like state industries or it risks wasting capital and living with high inflation and government debt. It faces a social crisis as tens of millions of peasants flood into the cities. (The World Bank says that there are more than 200m peasants "surplus to requirements" in the Chinese countryside.) The main cities are already bloated by floating populations: recent migrants account for one quarter of Beijing's population. Crime, corruption and civil unrest have followed.

China's biggest challenge is how to handle the impact of the economic decentralisation that was so essential to reform. Beijing is finding it hard to raise taxes and manage the money supply. Some 80 per cent of the new VAT-itself an attempt to find new ways to raise funds-went uncollected in 1995. China has to find a more decentralised political system to manage its economic decentralisation. The solution-federalism-requires a civil society and rule of law that China's communist bosses distrust. China is the only large country in the world which does not have a federal system. Without political reform, Beijing will find that it can only pretend to rule; the provinces, entrepreneurs and township bosses will pretend to be ruled. Beijing's signature on an intellectual property rights agreement or its negotiations for entry into the World Trade Organisation will be worthless without a workable system for governing China.

Much has been made of the role of "overseas Chinese" in ensuring the success of China's economic reforms. True, 80 per cent of the total foreign direct investment in China comes from ethnic Chinese living abroad, but these overseas Chinese do not constitute a single network set to dominate the east Asian economy. It makes little more sense to talk of a single group of "overseas Chinese" than it does to describe Bill Clinton or Paul Keating as "overseas Irish." As Jews, Poles or Indians know, the second or third generation of immigrants to liberal societies take on many features of the class and country in which they live. Second and certainly third generation ethnic Chinese in North America and Europe are Chinese by origin, but their loyalties are not to China. If their Chineseness gives them a business advantage in China's market, they will not ignore it. But if market conditions in China are not propitious, they will invest elsewhere-in India or Brazil.

Ethnic Chinese in east Asia are another matter. The 22m Chinese in Taiwan have substantial investments in the mainland, but Taiwanese businesses are already beginning to shift to southeast Asia and even to India in search of better returns. Despite the rhetoric, blood ties will not count for much if there is red ink on the balance sheet. Furthermore, these ethnic Chinese compete against each other for China's market-as good capitalists should. Finally, it is doubtful whether the family-owned business structures of many ethnic Chinese enterprises can expand without bringing in professional and non-family talent. As Francis Fukuyama has remarked, these ethnic Chinese have yet to prove that they can meet the challenge of building complex multinational enterprises.

Peace through prosperity?

Now to the fifth dubious assumption: the notion that economic prosperity will help transcend military conflict. It was Japanese dependence on American oil that triggered the war in the Pacific in 1941; Europeans in 1914 and Yugoslavs in 1990 learnt that economic interdependence offers no protection from war; a country such as China-which is increasingly dependent on imports of food and fuel-could also decide to ensure access to resources through the force of arms (for example in the South China sea).

Economic interdependence did not stop China from intervening in Hong Kong's political system; neither did it stop it from closing air and sea lanes near Taiwan. Democracies may not go to war with each other-but economically interdependent authoritarian states do. Concern about security in the region goes beyond China's unsettled territorial agenda, or even the chip on its shoulder about its international stature. China is operating in a region where there are big uncertainties about the balance of power: Russian power is in decline; Japan is uncertain about whether it wants to confront a rising China; while southeast Asia seems prepared to accept China as a superpower.

Meanwhile, there is great uncertainty about the role of the US in the region. It is reducing its military role in east Asia despite its economic stake there: since the end of the cold war, the number of US troops has been cut by 20 per cent and the US has left its bases in the Philippines. In 1994, Japan refused to support tough military action against North Korea while other US allies in the region have also made it clear that they do not want to see force used to defend Taiwan or the South China sea. Americans have found that they have a virtual alliance in east Asia-in contrast to Europe where, despite difficulties, their allies fight alongside them in the Gulf or Bosnia. There is also virtual multilateralism in the shape of APEC.

New patterns of power

East Asians have not invented a new form of economic progress or international order. The conviction that they have done so could lead them to ignore warning signals about problems ahead. Hubris in east Asia is in no one's interest. Europeans and Americans rely too much on expanding east Asian markets and money to finance their debts.

The east Asians do unfortunately believe some of their own myths. For example, they see no need for multilateral institutions. But they would be foolish to think that the US will always ensure security, or that China is really a cuddly status quo power. Nor should anyone believe that China will necessarily remain united, let alone economically successful. Everyone knows that the epithet "China expert" is a contradiction in terms. Who can tell what policies a dissatisfied Japan will adopt in the face of a rising China?

But even if east Asia remains on its current course, sustained economic growth in the region is certain. The result will be a new pattern of international power. Europeans already do more trade across Eurasia than they do across the Atlantic and this trend will deepen. But the global economy will continue to be characterised by three large zones of success-east Asia being the most fragmented of the three. Transatlantic ties are likely to remain the warmest of the three sets of ties, if only for reasons of culture and shared co-operation in military affairs. The US, like Europe, may be trading more with east Asia, but no one has real friends in east Asia. Indeed, the Americans may well find that as their role in east Asian security diminishes and as trade friction across the Pacific increases, the transatlantic relationship will become more important, not less.

As the international economy becomes increasingly borderless, companies and individuals will have to spend more time in the region and deal more with the giant new east Asian companies. As east Asia grows, it will use more energy. Fuel prices will rise and new sources of energy will have to be found. Trade between east Asia and the middle east may rise sharply-although the mineral-rich Russian far east might also become a tempting target for resource-poor east Asians. The new rich in east Asia will eat more food and food prices will also rise. Food exporters will do well and Canada, Australia and the US might benefit. Europeans, too, might find new markets for their food surpluses. East Asians will also-eventually-have to spend their savings on welfare when their current baby boomers are pensioned off. The result will be a reduction in capital exports and higher world interest rates. By then, Europeans and Americans might have reduced their state spending as their pension bulge will have passed. So they might be better placed to compete with Asians facing the equivalent of current European and American concerns about the welfare burden.

The rise of east Asia will also add another layer to the cultural mélange that is "the west." The strength of the west has always been its ability to co-opt from others. Judaeo-Christianity drew on Hellenism; in the 19th century, the west expanded across the Atlantic and changed as the Americas grew into distinct societies; in the 20th century, the west defeated communism. In the 21st century, it will absorb the best from east Asia. Signs of this are already evident in the oriental influence on the arts or the food we eat. Our current disaffection with "the culture of complaint" or the "culture of contentment" and our exploration of communitarian values owe something to the recognition of our past strengths in what we see as the current strengths of east Asia. Those Asian values used to be our values; we may not wish to go back to Victorian times, but we may have gone too far in abandoning all those values.

The challenge from east Asia is not only about markets and money. It is also about basic values and the way international society is organised. Britain is well placed to play a key role. It should lead the European part of the debate about how to react to east Asia. Britain's more distant attitude to European integration, if cast in more positive tones, could form the basis of an important link between the three parts of the global economy. Britain is home to nearly half of all Japanese foreign direct investment in Europe; it therefore leads the way in attracting all other east Asian investors. Appropriately enough for a country that once had the world's largest empire, it stands to gain most in Europe from the rise of east Asia.