The same can be said of Asia’s economic ascent more broadly. In big-picture terms, Mahbubani is weighing in on that great debate over how to fix capitalism. Is the answer more government oversight to prevent capitalism’s excesses, or less government intervention to allow the market to police itself? Mahbubani’s belief, apparently, is that Asia shows us an interventionist state is the way to go.
However, in my opinion, many analysts have exaggerated the role of government in the Asian growth story. As I argued at length in my 2009 book, The Miracle: The Epic Story of Asia’s Quest for Wealth, the real cause of the region’s ascent has been private enterprise, free trade and entrepreneurship, not “state led” development. It is true that interventionist states helped to kick-start growth, and certain industrial policies aided the advance of a small number of specific sectors. But in the end, the state tended to create as many disasters as successes. The economic crises in Japan and South Korea can be traced to bureaucratic meddling, and state manipulation of the economy in China, as I recently argued, is setting up the Middle Kingdom for a crisis as well. In fact, in most of Asia, the direction of economic policy has been away from the state-led policies of the past, toward freer financial markets and more open trade. Asia is using market forces to correct the distortions of its state system, not the other way around. So I’m not convinced governments in the West should mimic the tendency of their Asian counterparts to manipulate and control capitalism.
Another point Mahbubani makes concerns Asian capitalism and social welfare. He argues that Asian capitalism has done a better job of protecting workers and fostering equality:
Asian governments fought off unemployment by creating incentive schemes to promote investment and employment. Western governments dismissed this as “industrial policy,” an ideological heresy. And when western workers suffered, the capitalists retorted, “markets know best.” Perhaps the time has come for the west to learn from Asia how to manage the existential challenges of the capitalist system.
In reality, it is hard to prove that Asian capitalism is better than Western-style capitalism in dealing with the fallout from free markets. Comparing the income gap in the U.S. and countries in Asia reveals a mixed record. The degree of income inequality in China and Singapore is very roughly the same as in the U.S., in Hong Kong it is higher, and in South Korea and Japan, inequality is much lower. Second, Asian governments have not created sufficient social safety nets. Unemployment benefits and other welfare programs tend to be meager, shifting the burden onto companies and families. China is in a mad scramble to build proper health care and pension systems.
However, Asian capitalism has always put a premium on job creation and employment, and here the West can learn quite a bit from Asia. When things go bad, the first impulse of Asia Inc. isn’t to lay off tons of workers and dump the responsibility for them onto the society at large. Despite all of the complaining in the U.S. about big government, corporations are perfectly happy to boost their own profits by hoisting unwanted workers onto the state. In Asia, it is simply considered unseemly to fire staff in large numbers. Much of that is cultural, but you can also argue it is good economics. During the worst of the Great Recession, companies and governments got together to find all sorts of schemes to keep workers in their jobs. More people employed means more people spending money and a counterbalance to the collapse of global demand. Long term, Asian companies, by showing more loyalty to their staff, get more loyalty in return and therefore are focused on the development of internal talent. Corporate America, in its endless quest for increasing shareholder returns, has forgotten the importance of the people who create those returns. Asian companies haven’t.
Another key way in which the West can learn from Asian capitalism is in how governments support growth. Being probusiness doesn’t just mean giving CEOs tax breaks. It means providing the public goods necessary for business to thrive – I’m talking infrastructure and education here. It’s hard to get business done if you can’t find talented people to do it or if you’re stuck half a day at the Newark, N.J., airport. In my opinion, Asian governments have been much more focused in recent years than those in the West on upgrading schools, roadways and airports.
That takes us to the main way in which Asian capitalism can help the West. As Mahbubani smartly points out, Asian governments tend to put pragmatism and problem solving over ideology. This process hasn’t been perfect, of course (as in Japan). But in very general terms, Asian policymakers have been more willing to experiment, or go against convention, or toss aside the Economics 101 textbooks in a quest for growth and increased incomes. In the U.S., we see ideological hang-ups standing in the way of what everyone realizes must get done. A diehard belief that governments can’t help economies has prevented the necessary investment in new infrastructure. If Wall Street bankers won’t better police themselves, then they are inviting the government to do it for them.
Perhaps the West can be saved by Asian capitalism – if that means dropping the political bickering and ideological grandstanding and doing whatever is necessary to create prosperity.