Is the Asian financial crisis actually a crisis of global capitalism? To a growing chorus, including Japan's Vice-Minister of Finance Eisuke Sakakibara, hedge fund manager George Soros, and Malaysia's Prime Minister Mahatir, the answer is "yes." They believe there is a need for a new "architecture" of global financial institutions to govern capitalism today. They argue that globalization has unleashed uncontrollable amounts of capital that swamp national economies, destroying growth and jobs in their wake. Bolstering the International Monetary Fund is necessary but not sufficient. New institutions, laws, and taxes must be created to tame global capital.
We don't think so. The truth is that Asia's command-and-control economic systems were able to harness double-digit savings rates to generate high growth rates for nearly three decades. Poverty was cut dramatically. It came to a halt in Asia because the corrupt, hierarchical economies could no longer efficiently allocate capital, whether internally generated or from overseas. The Korean chaebol or the Southeast Asian family conglomerates overborrowed to build overcapacity because they received cheap financing from politicians or relatives. Even now, the chaebol are getting subsidized loans from friendly Korean banks to hang on to uncompetitive operations.
A new global financial architecture will not solve these problems. Global capital should be free to move but must be made to pay for its mistakes. One lesson the Asian crisis teaches is that capital flowed to Indonesia, Thailand, and Korea regardless of obvious risk.
Painful as it is, the Asian crisis is acting as a solvent breaking down authoritarianism in one country after another. It is making markets more flexible and robust, societies more democratic. Global capitalism is doing what it has done for centuries--destroying the old, creating the new. It is not in crisis.