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Wednesday, June 14, 2000

Asian economic ills were homegrown

ASIAN ECLIPSE: Exploring the Dark Side of Business in Asia, by Michael Backman. Singapore: John Wiley and Sons, Ltd., 1999, 379 pp., $29.95 (cloth).

An insightful adage states that a best friend dispenses "tough love," meaning that if one is turning into an alcoholic, the friend will withhold strong drink -- and he will encourage one to face some painful truths as well.

Michael Backman is surely one of Asia's best friends.

His sharp eyes perceive how several Asian economies became drunk on a sweet but dangerous cocktail giddily mixed out of corruption, family politics, lack of accountability and flouted laws. Consequently, Korea and Indonesia almost collapsed in the financial meltdown of 1997-98, and the region's superstar, Japan, remains in an economic and political stupor, neither passed out nor vigorous.

The author starts his "tour d'horizon" of Asia by discussing Asian values. He is a realist who astutely analyzes a subject that Asians themselves obfuscate, insisting that they naturally love harmony and cooperation. But these are manipulative bromides that many Westerners believe out of ignorance, good will or apathy. Rarely do Asians focus candidly on power relations, as Backman does.

He begins by challenging the simplistic yet somehow comforting notion that culture leads and politics follows; in fact, the very reverse can be true. The Confucian emphasis on family, savings and thrift, he correctly realizes, derive from a society with poor legal structures, one in which the government ignores the penurious. He adds that while Asians rigidly honor social codes, they apply legal strictures situationally. It is amazing how many Westerners fail to grasp the implications of this. Even Backman understates it: What Westerners call hypocrisy or expediency, Asians call flexibility and adaptability. However, the Westerner usually cannot bend and ignore the law, as his Asian counterpart can.

Backman then analyzes Asia's long drinking binge. Corruption flourishes in China and Indonesia partly because the civil servant is poorly paid. A higher form of corruption, namely copyright violations, can give rise to astounding anomalies. In Indonesia, a merchandiser selling fake Pierre Cardin clothes tried to sue the real Pierre Cardin for selling the same clothes.

In addition, bankruptcy laws are, well, bankrupt in Thailand partly because it is better to keep losing money than to lose face. Punctilious auditing, insists Backman, is un-Asian.

As for the business media, they cannot be watchdogs because they are kept in a state of puppyhood by censorship, as in Indonesia; by low wages, as in Southeast Asia; and by control by corporate owners, as in Korea. Regarding the Korean and Japanese media, one might add that a reflexive nationalism, as well as outright bribery by special interests, often result in chauvinistic coverage of trade disputes. Corporate plutocracy wins and consumer democracy loses.

The result of all of this is that the "lack of constraints on corporate Asia leaves it a law unto itself." The consequences span: banks sinking in a sea of red ink; conglomerates marooned on the shoals of bloat; and stock markets that do not protect minority stockholders, the "little guy." In a tragicomic chapter on polygamy in Southeast Asia, Backman reports that warring factions can develop around each mother (it is best to have girlfriends). A family feud weakened a firm in Thailand before headstrong family control decimated it.

Backman's analysis of Indonesia implicitly argues that every legal, economic and political failing one can imagine has plundered this tropical paradise. The general-dictator's children, unfortunately, took after their father. One son wanted Indonesia to have a national car. As it was impractical, he imported a car ready-made from Korea and forced bewildered and resentful government officials to buy it. Perhaps because he lived in Indonesia, Backman's writing on this despoiled, beautiful country is especially lively and knowledgeable.

As for Japan, this still-recessed economy has serious problems. Japan is ruled by bureaucrats, conservative politicians and businessmen who interlock, so any attempt to reform one node is resisted by the interdependent other nodes. Outside pressure is needed, but what is most urgent is an end to banks that squirt money at profligate firms, toothless free-trade laws and stunning corruption in sectors like construction. China, ostensibly the rising dragon, warns Backman, may descend rapidly if it ties itself down with the dead weights of unwieldy conglomerates, rampant corruption, a weak legal regime and crony capitalism.

When Backman opines that "Asia might have its unique cultural values, but at the end of the day, a crony is a crony, poor disclosure is poor disclosure, and a shonky bank is a shonky bank," one laughs with him; but then one laughs at the high-powered MBAs and Asian nationalists of the 1990s who were long on pride and short on common sense. Asians who want to compete will have to modernize their minds, not just their production lines. They must learn to be transparent, accountable, accurately audited, legalistic and not family-owned. Asian journalists must fear unprofessionalism, not the censor.

Backman's witty writing enlivens the book throughout. For instance, he writes, "Sound corporate governance, like virginity, is under constant threat from temptation." In addition, he enriches the main text with entertaining case studies of powerful people wrecking their empires -- or enjoying them. The naughty Prince Jefri of Brunei named his yacht's two lifeboats "nipple one (and) nipple two." Imagine if he had had three lifeboats.

As for weaknesses, the author is amazed that the crisis of 1997-99 did not occur sooner. One wonders if he wrote or lectured on the impending crash. He does not say.

Second, when Backman expounds on "Asian" values, he usually means Confucianism. What about Islam in Southeast Asia?

Further, the author attributes Japanese values to its rice-growing past. Here he wrongly reverses his earlier insight that, often, power produces culture and ends up repeating a cliche about rice growing that the Japanese smilingly invoke to justify insularity and collusion. In truth, the twin crucibles of Japanese values are the Tokugawa Shogunate (1603-1868), which exalted obedience, and late modernization after 1868, which entrenched bureaucratic rule. Rice growing explains why Japanese eat rice.

One hopes that Backman will continue to play the role of Asia's stern but sober friend and write a progress report on the same bibulous economies he profiles here. Our destructive habits can be pleasurable. But if we do not break them, then the habits break us, no matter who our friends are.

Victor Fic is a freelance writer and journalist based in Seoul.

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