The Asian crisis is going to be worse for the west than even the pessimists imagine. But Asian values are not discreditedby David Howell / October 20, 1998 / Leave a comment
The Asian financial crisis goes from bad to worse. No one will be surprised by this except for the group of analysts and commentators who, towards the end of 1997, looked at the figures for direct trade between the western world and southeast and east Asia and concluded that the region’s troubles would hardly touch the European or American economies.
So small, they argued, were the volumes of direct imports and exports between either the EU or the US and the affected areas, that the whole business could safely be regarded as marginal, even beneficial, and the impact on western growth minuscule. Stock markets seized the good news and roared on upwards.
Unfortunately, as events are now proving, this rosy conclusion overlooked some vital considerations.
First, many of these experts, who like to remind the rest of us three times a day about globalisation, forgot their own lessons. Bilateral trade flows with troubled areas are a useless guide. Everybody trades with everybody, as Patrick Minford has pointed out, so that all our trade is damaged when a large part of the world economy starts shrinking.
Second, Asia had turned itself into the region with the world’s highest volume of savings and the biggest export supply of longer-term investment, much of it channelled into the western economies. That tap has now been turned off. Some of the investment is even going home again.
Third, the west has invested heavily in Asia, partly, it is true, in order to ship lower-cost goods back to Europe and the US, but also to supply what used to be booming Asian demand. Asian order books have shrivelled.
Fourth, Russia, to the amazement of some analysts, turned out to be next door to Asia. Weakened by collapsing oil revenues, mediaeval politics and bad economic policies foisted on it by western economists, Russia rapidly contracted the Asian flu and will take years to recover.
Fifth, the Japanese bad loans bubble, suppressed for years, reached bursting point precisely at the moment when the Japanese banks found themselves exposed to the new horrors of southeast Asian and Korean collapse. (The Chinese economy is also reaching the bubble-bursting point, although this drama is yet to play out.)
Sixth, the whole Panglossian analysis overlooked the psychological impact of the crisis on the west. For almost two decades now, Asia has been the glow on the horizon-the El Dorado vista in…