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Tuesday, May 4, 1999

A dose of reality for Asia's high-flyers

TIGERS TAMED: The End of the Asian Miracle, by Robert Garran. Allen Unwin, 1998, 228 pp. (paper).

"Tigers Tamed," "The Trouble with Tigers," "Asian Contagion." It's hard to miss a touch of what seems like gloating in the attempts to chronicle Asia's recent misfortunes.

Of course, the way that some Asian leaders trumpeted the essential differences -- and the superiority -- of their socioeconomic models makes it hard to resist the temptation to get a few kicks in. But the human cost of the "Asian crisis" and the potential effect on the world financial system should quickly restore a little perspective. This isn't merely an "Asian crisis," nor is it about bragging rights. It is about the prospects and living standards for half of humanity.

Robert Garran, a longtime student of Asian affairs whose bylines have appeared in The Australian, The Age and the Australian Financial Review, does his profession justice in "Tigers Tamed." His assessment of the events of the last two years is balanced, informed and well-written. His conclusions are not likely to surprise many people, although his inclination to blame the Japanese for creating the conditions that led to the crunch in the summer of 1997 will irritate decision-makers in Tokyo.

Garran echoes the conventional wisdom: "While there were cyclical elements to the collapse, there were more deep-rooted problems too. . . . The poorly managed financial systems and the cronyism and corruption were fundamental to the crisis; their roots lie deep in the much-vaunted Asian model of economic growth."

The argument that the close collaboration between public and private sectors bred moral hazard and overcapacity seems beyond dispute. Similarly, no respectable economist will challenge Garran's claim that the crisis was exacerbated by the response -- "panic" -- of investors in financial markets.

The key to Garran's book is his linking of the two. He writes that "the loose collection of ideas that made up the Asian model took on a life of its own. The whole became greater than the sum of its parts, creating the myth of the miracle. . . . When the mania was deflated, the miracle ended."

Garran believes "Japan played a bigger role in fomenting the 1997 crisis than any other country." Japan provided the model for bureaucracy-led development and, in the '80s and '90s, much of the cash that fueled Southeast Asia's boom in the first half of this decade. The strong yen that began after the Plaza Accord of 1985 gave Japanese manufacturers a reason to search for cheaper export platforms and gave Southeast Asian economies an export advantage. When the yen peaked in value in 1995, the party was over and the eventual crash was only a matter of time.

Of course, the fault is not Japan's alone. Each country and government had its own particular weaknesses, which puts the lie to the myth of "an" Asian model. The crises in Brazil and Russia should also end talk of a distinctly "Asian" contagion.

Common features are easily identifiable: under-regulated financial markets forced to deal with floods of "hot money"; authoritarian, undemocratic or nontransparent political systems that put vested political interests first; economic policymakers who did not understand the interrelationship of fixed exchange rates, full capital mobility and full monetary policy independence. (In regard to the last item, Garran flatly states, "a country cannot simultaneously have all three of these features.")

Although "Tigers Tamed" is the work of a journalist, there isn't much "reporting." Rather than recycling old stories -- a regular temptation for this type of book -- Garran's contains more analysis and surveys much of the professional literature, providing context rather than color.

The biggest controversy will surround Garran's claim that the crisis has shifted the regional balance of power away from Japan and the United States and toward China. When he was writing the book, that seemed true, but the slowdown in China and Japan's efforts to fashion a regional bailout package may have shifted perceptions once again. If the Japanese economy starts growing again this year, then the 21st century may see Tokyo poised for another run at regional leadership.

Chastened perhaps, a little less confident maybe, but ready nonetheless. The real question is what response will it get from the "tigers" that once seemed so eager to follow Tokyo's lead.

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