Magazine-Cover Curse Takes on New Meaning in Asia
What both leaders have in common is everyone slapping the “-nomics” suffix onto their growth strategies. “Abenomics” has excited investors, not to mention the pundit class, with its aim of ending 15 years of deflation. The same is true of “Aquinomics” in a country long deemed the sick man of Asia, now an investment darling.
Such bouts of euphoria often end in tears: “Reaganomics,” “Rubinomics” and “Bushonomics” in the U.S.; “Thatchernomics” in the U.K.; “Berlusconomics” in Italy; and “Thaksinomics” in Thailand. Sometimes the reckoning comes in short order; other times it takes decades. The track records of all too many of these supposedly new formulas for prosperity are questionable.
The problem is hype versus real change. Having one of these splashy appendages added to your ideas tends to have the same reverse karma payoff as being on the cover of a large- circulation magazine. By the time a trend or ideology is popular enough to warrant such a tribute, the game is already up. So, is the buzz about the Japanese and Philippine economies overdone? It will be if leaders put too much stock in their own press.
All this gets at Asia (MXAP)’s big challenge is 2013: modernizing financial and political systems to make sure economies are moving in the right direction. Only that will ensure that today’s hype becomes tomorrow’s reality.
Asia has performed remarkably since 2008, avoiding the worst of the aftershocks from the U.S. financial crisis and weathering Europe’s debt mess. Growth has been consistent and rapid, asset markets buoyant, and consumer and business confidence positive. It’s vital to remember, though, that Asia’s success story in recent years is a macroeconomic one. Changes to the region’s micro-economy are lagging.
Japan is Exhibit A. Abe has gotten impressive mileage in currency and stock markets out of his determination to end Japan’s lost decades. Yet Abenomics is still a macro vision that lacks details. Abe needs to work fast to fill them in if he wants investors to stick around.
Xi Jinping’s blueprint also lacks clarity. Business leaders are optimistic that China’s new president can keep the second- biggest economy growing 10 percent a year without choking on the pollution it generates. It’s unclear how Xi will simultaneously shift the economy away from its dependence on exports, raise living standards and reduce the corruption fueling inequality.
There’s reason to worry that style will trump substance. In December, Xi’s first trip after becoming Communist Party head was to Guangdong province to draw parallels to a 1992 tour by Deng Xiaoping that spurred the country’s economic opening. Xi’s comments on the economy are surprisingly reminiscent of what Deng was saying back in the late 1970s. Reaching back to the Deng era for ideas that are obsolete in today’s world is China’s version of the U.S. cult of Reaganomics.
What works in one setting and time doesn’t necessarily translate to another. For example, slaves to the dogma that lower taxes cure everything forget that a more balanced and nuanced approach is required sometimes. China needs to embrace new ideas, not the unlimited armies of cheap labor, repression and forced industrialization that colored Deng’s era.
One reason investors are so intrigued by Aquino’s handiwork in the Philippines is how pragmatic it seems. Halfway through his six-year term, Aquino has increased taxes, arrested his predecessor on corruption charges, ousted the country’s top judge for illegally concealing his wealth and acted to reverse the overpopulation that perpetuates poverty.
This helps explain why a nation rated one level below investment grade is paying about 3.5 percent on debt due in 2023, almost 2 percentage points less than similar-maturity securities from higher-rated Indonesia. I caught up with Finance Secretary Cesar Purisima in Manila last week and posed the question of whether Aquinomics represents substantive change or a marketing slogan.
“The president believes that the best way to ensure our sustainability of what we’re doing is still really going beyond personalities, making sure we embed and institutionalize the reforms,” he told me. “Embed it through changes in legislation. Embed it through investment in our institutions, changing the way we reward and remunerate them. We’re starting that with our incentives-based compensation. More importantly, to change the people’s expectations. After all, it is the people that vote presidents to office.”
Officials in Japan or China tend to think they don’t have much to learn from the Philippines. But the kind of mindset of which Purisima speaks is missing from both Abenomics and Xi’s plans for China. It’s missing from Indonesia, as officials lose sight of why investors flocked to their nation in recent years. It’s missing from Malaysia, where the government perpetuates four-decade-old affirmative-action policies that hurt competitiveness. It’s missing from Singapore, where leaders seem to believe population growth is what matters most.
The key to succeeding is keeping perspective. Just because a policy direction is relevant at a given moment doesn’t make it a universal economic theory. Disciples of Abenomics, for example, forget that promising to end deflation means even less than making the covers of magazines. What matters is doing it and how you get there.
(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)
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