No Free Lunch
Asia and the troubled West
By Cielito Habito
Philippine Daily Inquirer
First Posted 15:29:00 12/07/2008
Filed Under: Foreign Aid, world financial crisis
MANILA, Philippines--IN A SEEMING reversal of traditional roles, the troubled developed economies are now looking to the developing world, especially Asia, for the financial flows that will ultimately bail them out of their financial meltdown. In its Annual Conference in Tokyo last week, the Asian Development Bank Institute (ADBI) gathered together various experts from around the region to discuss Asia's contribution to global economic development and stability. The topic is especially important at this time of global financial crisis, when Asian economies have weathered the financial storm with relatively minimal damage—at least so far.
In the panel discussion that rounded up the conference, I summed up the situation in three simple statements. In the face of the current financial crisis, (1) Asia has much to learn from the developed economies, (2) Asia has much to give to the developed economies, and (3) Asia has much to teach the developed economies.
Learning from the West
The financial meltdown sparked by the sub-prime crisis in the US has been teaching valuable lessons to all, especially governments, particularly on how not to manage the financial sector. Conference speakers noted how governments in the developed economies had in past years failed to properly govern their respective financial sectors in at least three areas: Curbing excessive risk-taking by private financial institutions, providing appropriate incentive and reward systems in the sector including executive compensation, and ensuring appropriate levels and mechanisms of transparency and accountability in the industry.
Actually, countries in East Asia had already learned their lessons 10 years ago with their own financial crisis, and had in fact put in place many of the safeguards that are now seen to have been lacking in the western economies. This explains why Asian financial institutions have largely been resilient, against the more debilitating financial sector impacts of the crisis in the US and Europe. But there are additional lessons now being learned from the failures of regulation (or lack of it) in the western economies that can only help further strengthen our region's capacity to resist the financial contagion.
Giving to the West
A study by American economist Lawrence Kotlikoff presented in a Manila conference several years ago pointed to an impending collapse in government finances in the developed world, composed primarily of North America and Europe. Because of aging populations and low birth rates, coupled with the low rates of saving in these high-consumption economies, there are more people now drawing from the public social security system than paying into it. Amid these trends, the study saw an inevitable collapse that could not be prevented by even the most unrealistic tax increases that these governments could impose on their citizens to fill the anticipated shortfalls. But when the study factored in Asia with its high saving rates as a third economic force in their global simulation model, the fiscal collapse in the West was shown to be avoidable. In effect, Asian savings would be the vital savior of the developed economies from otherwise inevitable fiscal collapse. Asia has in fact already been lending massively to America, through the trillions of dollars of US financial assets now held by Asians, a fact repeatedly lamented by President-elect Barack Obama during the US presidential campaign.
All this is not to mention the vital importance of Asia as market for the products of the developed economies. And this market grows with rising incomes and populations, coupled with closer regional economic integration that is taking place especially in East Asia. Truly, Asia has so much to give to the developed countries, and they know it.
Teaching the West
The ADBI conference also devoted a session to social and environmental sustainability of development, an imperative that could easily get lost amid the current concern to address collapsing financial systems and contracting economies. And in this area, I have always pointed out that there is much that Asia can teach the world. Asian cultures have traditionally had strong principles of sustainability, respect for nature and sustainable lifestyles deeply ingrained in them, often attributed to Confucian ethics or Eastern religions like Buddhism. Many worry at how these values are slowly being eroded by the utilitarian philosophy and hedonistic lifestyles of the West, often criticized for their unsustainability, and promoted through the global mass media, especially cable TV and Hollywood.
Amid concerns that the current preoccupation with short-term economic stabilization would drown out concerns addressing longer term sustainability, Asia can teach the world a lesson or two based on its own indigenous knowledge and practices. What is needed perhaps are Asian mass media outfits that can be as globally ubiquitous as, say, CNN, BBC or MTV that could subtly promote Asian values of sustainability to the people and governments of the world.
Comments welcome at chabito@ateneo.edu
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