Has the Asian financial crisis (AFC) torpedoed the paradigm of economism? The AFC occurred at a historic time when stability and prosperity were needed and desired in virtually all economies in Asia. In the late 1980s and early 1990s, there was even talk about the “Pacific century, ” suggesting that the development of Asian economies would become sustainable and dominate the world economy in the twenty-first century. Optimism remained high despite the structural difficulties that occurred in the Japanese economy in the early 1990s. The Asian economies were thought to be shielded from the economic and financial crisis in Latin America in the early 1990s. However, events in the second half of 1997, immediately after the reversion of sovereignty of Hong Kong, shattered all hopes of any favorable outcome as the growth and assets of number of Asian economies plummeted and their currencies depreciated. The East Asian “miracle” was over, leaving behind a number of “crisis-torn” economies with severe domestic structural problems.
The reasons for the AFC have been explained by a number of theories that can be consolidated into the fundamentalist school and the contagion school. Little discussion, however, has been devoted to the future path of the Asian economies, especially the four East Asian economies of Hong Kong, Singapore, South Korea, and Taiwan. Will the success of the last few decades come to an end? Will the fundamental factors that brought growth to these four economies remain in place? Has the view on poverty versus inequality changed? Or has the role of government been reversed? The discussion should concentrate on whether the AFC has changed the essence of the paradigm of economism.
This chapter attempts to summarize the various issues in the AFC, but argues that the “floor conditions” or fundamentals of the economism paradigm have not been changed. The AFC has not affected the conceptual underpinnings in the economic development of East Asian economies. Indeed, the AFC has brought out the importance of the need to preserve the “floor conditions, ” as they are an effective shield for the economy. The AFC merely highlighted the importance of business cycles and the need to avoid crisis. An equally important issue is the various implications of the AFC for the