Many Question Whether Asian Nations Learned Lessons from Economic Failures

Article excerpt

Two years ago, Asia's economies were falling apart and the question in many minds was "Can Asia recover?" Now the talk is of better times - especially in Malaysia, the Philippines, South Korea and Thailand.

Now the question, which is not getting the attention it deserves, is "What if Asia's recovering economies return to their former paths?"

Despite adjustments in international financial coordination that may be able to better contain currency crises, and even assuming real reductions in the most venal aspects of local business practices, what if recovery is based on the main features of the strategy that collapsed - namely single-minded support for export-oriented manufacturing and reliance on high levels of foreign investment?

There are three answers to the "what if" question:

* First, the opportunity for more stable economic growth will be lost.

There is a big difference between export promotion as part of a broad growth strategy, and as a substitute for such a strategy. Throughout Asia, the latter was the reality.

Even before millions of factory workers lost their jobs and headed back to rural towns and villages, more than 80 percent of Asia's labor was employed in agriculture and nonfinancial services. While the shares of manufacturing and exports in gross domestic product grew rapidly, the share of the labor force in manufacturing changed little. In many instances, new jobs in export factories barely offset jobs lost in domestic factories.

The sector that led in absorbing labor was services. Productivity growth in agriculture declined, due largely to declining public and private investment. Job growth in services was dominated by low-skill, low-wage work, done mainly by women and children.

Without a much stronger emphasis on national development, export-oriented manufacturing will continue to have no real domestic cushion and consequently will remain vulnerable to international fluctuations. That vulnerability is made worse by competing based on low wages, restraining labor organization, and environmental mismanagement.

Whatever the short-term profits, the past model is in the backwash of globalization, as is the logic of low-cost producers undercutting each other to manufacture someone else's innovation.

* Second, social instability will continue.

Reductions in poverty and increasing levels of social development - education, health, family planning and social mobility - were among the most important achievements of Asia's high economic growth. So was the rapid expansion of an urban middle class. Across the region, these changes occurred despite declining shares of public investment going to social development.

Within this picture, there are three stories.

For the wealthy and the middle class, there was access to enhanced high schools, universities, hospitals and specialized medical centers. For low-income people living in major urban areas and the larger towns, there was improved access to basic health care and elementary education. For the urban poor and most people in rural areas, access to even basic social-development services changed little: The poorest had no access while the less poor saw some improvements. …