Two of Asia's leading Tigers are in trouble. The government-business alliances that powered the economic miracles of Taiwan and South Korea are unraveling--just as the two nations face slower growth and increasing competition from China and Southeast Asia. The faster these top-down, export-oriented, command regimes move to more open, pluralistic societies, the quicker they can shift to more competitive, consumer-driven economies.
In the interim, however, there may be trouble. New democratic reforms are challenging the crony-style capitalism that prevails in both countries. In the past, powerful business groups were able to use their political connections to receive government support for their huge projects automatically. Now, Taiwan's increasingly independent legislators are vetoing these plans, incurring the wrath of the big-business elite. In fact, the country's entire political structure is in transformation. This month, a group of reformers defected from the Kuomintang, which has ruled the island for 40 years, and the party threatens to break apart, much like Japan's Liberal Democratic Party.
In Korea, the new reformist President, Kim Young-Sam, is trying to break the stranglehold the country's large conglomerates, or chaebol, have on the economy. He's attempting to favor smaller entrepreneurs and increase foreign investment to boost local competition. Kim is also launching wide-ranging corruption investigations.
Critics of Western-style democracy, such as Singapore's senior leader Lee Kuan Yew, no doubt will see in Taiwan and Korea proof that economic growth and Western-style democracy are incompatible. They're wrong. From Tokyo to Buenos Aires, state-directed authoritarian capitalism has invariably led to major political corruption and economic inefficiencies. Political, bureaucratic, and business elites use the government to foster their own mercantilist goals. Not only do trading partners suffer, but so do members of their own middle class.
During the cold war, the U.S. strongly supported one-party rule in Asia to combat communism. Now, Washington must move on and build new relationships based on shared economic interests. Though it may upset ties to friends that date back decades, the U.S. should throw its full support behind the reformers trying to change Asia's largest Tigers.