It's One World, Ready or Not? But Some Are Not 
International Herald Tribune
September 9, 1998
Marshall Auerback and Patrick Smith 

In the months and years hence, these past weeks will be better understood for what they are: the point at which globalism lost its place as the world economy's unassailable logic.

Globalism's fall from grace is a step toward a more diverse community of nations that is no longer so inclined to look West-ward for leadership.

The Russians' economic and political messes have brought financial markets to calamity's edge, but Russia is in no position to challenge anybody. At this point, all Moscow wants is help from any direction.

No, those first to confront the primacy of neoliberal capitalism are the East Asians. They, too, have been in crisis. But they have now arrived at economic policies entirely at odds with those proposed by the U.S. Treasury and the IMF, which have long led the globalization crusade.

The world took little notice in December when Mahathir bin Mohamad, Malaysia's prime minister, convened a summit of Asian leaders in Kuala Lumpur. Most Western analysts pictured Mr. Mahathir as the neighborhood xenophobe and dismissed his anti-Western rhetoric as a sideshow.

It was partly that, but more attention should have been paid to the Kuala Lumpur summit. East Asians have ever since nodded politely toward the West with no serious intention of carrying out the IMF's socially destructive, no-pain-no-gain solutions to their currency and debt crises.

Some banks will close and some corporations will merge; jobs will be lost and debt will be repackaged and sold. But from Tokyo to Jakarta, the clear intent is to stimulate the region out of recession while avoiding structural changes that the IMF has long deemed essential.

"I am an outdated Keynesian," Kiichi Miyazawa declared on the day after he was named Japan's finance minister in July. He soon added that he favored "economic recovery, not reform."

These are more than policy statements; they reflect strategy as much as tactics. At issue are not just the next quarter's economic results but preservation of an economic model that has advanced the region at a rate and for a duration with no parallels in history.

This is the context in which Malaysia's imposition of capital controls last week should be viewed. Wall Street and the State Department are reportedly shocked that Mr. Mahathir has taken this step. They should be. We now have the first live case study of an alternative to the Anglo-American model, which ranks unfettered capital flows among its signature features.

Malaysia's new policy has prompted unqualified objections in Western financial capitals. Currency controls will produce a fatal loss of confidence, it is said, and Western funds that have stayed the course in Malaysia will flee.

Whatever happened to history? With few exceptions, capital controls were in place across the region during the Cold War years — the Asian "miracle" era — and they never impeded investment. China, South Korea and Taiwan still maintain controls. As to capital flight, the Kuala Lumpur market's grim numbers suggest that supposedly loyal, long-term funds left town a long while ago.

Understood properly, capital controls are intended to limit inflows, not outflows. Mr. Mahathir has concluded that large amounts of short-term capital from abroad are too disruptive of a system based on high savings rates and high levels of corporate debt.

Condemned in the West, Malaysia's turn inward has summoned an eloquent silence from the rest of East Asia. If Malaysians succeed in rekindling growth, as they have a good chance of doing, it will be one more signal that Anglo-American capitalism will have to take its place as one alternative among others. We will eventually count division of the world into discrete economic blocs among globalism's lasting consequences.

Many in the West have viewed Asia and other regions not as complex societies but as markets ruled by market logic alone. Asian leaders are perfectly positioned to deliver a correction here. They may fall short as principled democrats, but their economic success is intimately tied to the social cohesion that globalism challenges.

It is well understood across the Pacific that globalization caused the Asian crisis and cannot logically be its cure. Some in the West have been confident for years that globalism is inevitable. It isn't. One world, ready or not? "Not" is the clear response. - Mr. Auerback is a partner in Veneroso Associates, a global strategic consulting firm. Mr. Smith is author of ''Japan: A Reinterpretation.'' They contributed this comment to the International Herald Tribune.

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