The Next Revolution  |  Oct 5, 2001

By Sin-ming Shaw

The news is grim, and Asia is ill-prepared for globalization. The region needs to drop its Confucian shackles. Guess what: China is leading the way

Asia's economies had been teetering on the brink of recession before the tragic terrorist attacks on the United States. Now, with a further slowdown in America, a freefall is more likely than a speedy recovery. But that doesn't mean Asia should give up on reform. Now more than ever, Asia must build economic foundations that will withstand the disciplinary forces of globalization.

Asia needs nothing short of a cultural revolution to face this challenge. The root causes of Asia's economic stagnation go beyond the fallout from a U.S. slowdown or crony capitalism. The region's mind set, still largely stuck in old Confucian paradigms, must change. Some economists say the time for reform has passed; mired in domestic politics, Asian governments missed the opportunity to push for sweeping financial change — from cleaning up the banks to improving corporate accountability. Now, in the face of a severe slowdown, just keeping their economies afloat will take precedence over reforms that could inflict more pain. But change is more important than ever. Asia needs better corporate governance, transparent banking practices, governments subject to checks and balances, and sound central bank policies. The region must also recognize that the traditional business structure — family ownership and management control — typically shuts out talent, promoting instead mediocrity.
Such change will be painful, but the cost of not changing will be immeasurable. Globalization is a relentless phenomenon; the markets won't wait while overprotected Asian economies and companies belatedly struggle to boost efficiency. The wrecking ball of global competition eventually knocks down the "walls" countries erect to protect the economically inefficient, the intellectually mediocre and those political systems that don't accommodate their people's yearning for a good education and a dignified life.

But four years after the Asian financial crisis struck, the region still doesn't get it. In this new economic era, ideas are what count. Yet Asia is woefully short of creative solutions. From Japan to Thailand, leaders are unable even to cope with yesterday's problems. In Thailand, leaders lack the courage to clean up the mess in banks that should be closed down or sold. In Japan, Prime Minister Junichiro Koizumi, struggling to push ahead with reforms, will need to convince his people that they need a new Meiji Restoration to revive a nation bogged down in stagnation. Taiwan, China's first-ever democracy, should have been the region's trailblazer; but its body politic, too, is paralyzed by factional strife. The government has failed to address the problems created by an over-regulated economy, an exam-fixated educational system, and primitive financial markets.

Asian values — and the stifling educational systems that they spawn — continue to hamper the region's latent talents. These values are largely derived from Confucian teachings that stress obedience, authority, and moral behavior based on social hierarchy. Asians are certainly not incapable of generating original ideas. The impressive list of Asians who have won Nobel prizes, one good indicator of originality, puts to rest any doubts that ethnicity has anything to do with creativity. But with rare exceptions, these Asian laureates were educated in the West, in an environment that prizes a good contentious argument, regardless of how much it might upset authority.

Surprisingly, China has taken some of the most radical steps to face the changing world. Why China, of all countries? Isn't the country full of policemen who mindlessly jail scholars looking for documents only remotely related to national security? Isn't the Communist Party riddled with corruption and cynicism as most members await the final curtain to fall on their ideology? Isn't it true there is no freedom of the press, without which good ideas do not percolate well?

Yes, China is all of that and often worse. But China is not just restructuring its economy. It is undergoing a quiet social revolution the scale of which will dwarf even that conjured by the Meiji Restoration in 19th-century Japan. This mental upheaval is changing the attitudes of the Chinese and how they relate to the world. Asian values, in fact, are admired less in today's China than in the rest of East Asia, because the Chinese have seen the worst consequence of those values and have rejected them as irrelevant.

With considerable historical irony, it was the murderous Cultural Revolution — launched in 1966 by Mao Zedong to smash his opponents within the Party — that began the liberation of the Chinese mind. In the aftermath of that calamitous upheaval, the Chinese people underwent a cathartic awakening and mental transformation that comes only rarely in the history of nations. It was the beginning of the Chinese Enlightenment. The world is only beginning to see the results.

It took a holocaust to make the Chinese wake up and re-examine the shortcomings of their culture. The rest of Asia must strive to achieve its own Enlightenment without such blood and instability. There is much to learn from China. These days, the Chinese, unlike their counterparts in the rest of Asia, have developed an instinctively skeptical mind towards established "truths," especially when these "truths" come from the higher-ups. The most ardent critics of Beijing's are the mainland Chinese themselves.

Much of Asia's thinking remains mired in an obsolete followers' mentality. That mind-set says when America sneezes, Asia catches a cold; but when America recovers, Asia will resume its growth. In the good old days, Asia's four Tiger economies (Hong Kong, Singapore, Taiwan and Korea) and their cubs (Malaysia, Thailand, Philippines, Indonesia) could count on double-digit growth year in, year out. Most leaders in these countries seem to believe respectable growth awaits them because Asia remains the lowest-cost producer of what the world wants. They are in for a rude awakening. When America picks up after this recession, Asia's growth is likely to remain middling. Morgan Stanley economist Andy Xie estimates long-term growth in Asia (ex-China) from 2002 onward will be at best only half of the 7% growth Asia had before the 1997 crisis.

China poses the biggest new challenge to its Asian neighbors. It is now the region's lowest-cost producer and has become the favored investment destination. China is still far behind Hong Kong's world-class financial services business because it fails to meet the five minimum prerequisites to qualify: a convertible currency, the rule of law, a highly skilled corps of bilingual professionals, a critical mass of global financial institutions, and lastly, a free press. But that, too, may change, as the next generation of leaders in China takes over the reins of power in two years. President Jiang Zemin has set the stage for more change down the road.

In opening the Communist Party's door to capitalists, Jiang has negated its very rationale. Beijing's leaders understand that if China wants to be a player, not a follower, it had better tear down its own walls — a less painful approach than having them torn down by others. Joining the World Trade Organization and reshaping ideology are ways of planning the end of the Party, to be followed by a new act with a new cast. They can't say so, but look at what they do, not what they say.

By contrast, Malaysia provides a case study of a country unwilling to let go of "walls" erected to serve yesterday's purpose. The country's universities still have racial quotas, erected 30 years ago, to favor native Malay students and redress a lopsided imbalance of education levels among its population. For Malaysia to avoid the "wrecking ball" of globalization, it must compete on brains, and brains do not carry an ethnic label.

In Hong Kong, the government must allow assets and wages to go down further. It must adopt an enlightened, rules-based land policy, because high property prices remain an impediment to growth. In Japan and South Korea, governments must reduce their "dirigiste'' role in the economy, break up nontariff barriers, and let conglomerates fail so that more efficient firms can rise to do a better job.

Singapore's leaders, like those in China, have wised up to the need for a new mind-set. They have piped down about "Asian values." Instead, they now are aggressively revamping the educational system. Government leaders exhort the people nearly daily to become more creative. It is doubtful whether creativity can be ordered up by government edicts. But at least the country understands that clinging to the old ways won't work.
Despite the bad news, this is an age of opportunity. The West remains the originator of nearly all the Big Ideas. But nothing is cast in stone. The Internet, technology and global capital are at the service of anyone, any company or any country. The country with the most ideas will come out on top. It is never too late for Asia to wake up. But the Asian mind must be liberated from sham ideas disguised as cultural maxims that define what a Thai, Japanese or a Korean should think or do. Asians must realize that we are the ones to define what we are, not what we are told we must be to remain a Korean, a Chinese or a Singaporean. The mainland Chinese are engaged in that redefinition. If the rest of Asia fails to grasp its destiny, the region's smaller economies, including Japan, will be left behind.

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