ASIA NEEDS TO REWRITE ITS STRATEGY
Asia's economic growth over the past decade has been nothing short of extraordinary. By any measure--gross domestic product, exports, wages, market share, standard of living--the Pacific Rim has put on an economic performance that is the envy of much of the world. That is why the recent downturn across Asia is being easily dismissed as merely a cyclical event that will soon be reversed, returning China, Malaysia, Singapore, South Korea, Thailand, and others to their previous high-growth track. We think not and urge caution. Something fundamental has changed in Asia. Old economic strategies may no longer be valid. Business and political leaders who stick with traditional top-down, export-dependent growth tactics directed mainly by central governments through favored big corporations may be in for deep disappointment. Asia is entering Stage II of its economic development, and a new, more difficult mix of economic, social, and political policies is required to move ahead (page 58).
Punch through the patina of optimism in Asia and realists will find severe problems that must be managed. Success has led to tight labor markets and sharply rising wages, but inadequate education systems fail to equip people with the skills and values for the next level of more advanced, technological work. While success has generated enormous profits, much of it has been poorly invested in empty office buildings or in profitless overbuilding of auto, chip, and petrochemical plants. Corruption has mitigated the efficiency that comes with market forces and free competition. Government-controlled banks and weak capital markets channel capital to state-owned companies or big companies with close links to those in power, especially hurting small business and entrepreneurs.
Asia's impressive economic growth has been built on mobilizing cheap labor and capital and protecting local companies from global competition as they exported overseas. To move to the next level of growth, Asia must give up the command economy and move toward one based on markets, merit, and innovation. Authoritarianism was once proclaimed as an Asian philosophy duly suited for economic growth. To get to Stage II, Asia will need a more decentralized, flexible economic strategy and a value system that encourages it.