Anderson weighs in

[Bradford DeLong]

>Christian Gregory wrote:
>
>>  > Peter Gowan is the guy who holds the bizarre
>>belief that at the start of 1997 Larry Summers and Bob Rubin plotted out the
>>Asia crisis in
>>order to destroy the "Asian model" of development?
>>
>>Where did he say that? I recall that his argument about the US 
>>interest in the
>>crises of the 70's and 80's made it seem as if they knew what they were doing
>>all along--ie that 1982 was mapped out in 1971. (I could be misremembering,
>>though.) But I recall him saying, in a more accusatory way, more or less what
>>Stiglitz said about the Asian crisis: namely, that the crisis scenario wasn't
>>even considered, b/c, beforehand, they knew the IMF would "clean it up" in a
>>way which suited them--ie fiscal reform for a liquidity crisis. In the
>>aftermath, they got to say "I told you so," about the Asian miracle. As
>>Stiglitz pointed out, this was pretty comical: the IMF never attributed SE
>>Asia's successes to developmental states, but they were quick to blame them
>>for mismanagement of capital account liberalization.

But wasn't Larry Summers the protecting angel who kept the World 
Bank's _East Asian Miracle_ study from being strangled in the womb? 
And didn't Larry once write that the developmental states of East 
Asia had gotten relative prices wrong, but that given the external 
benefits from industrialization getting relative prices wrong in that 
particular way was the right thing to do?


>
>And besides, wasn't the whole Clinton-Rubin-Summers push to 
>"liberalize" East Asia all about pushing the region towards U.S. 
>finance/governance models in the first place? Surely they knew that 
>the "Asian model" depended on regulating trade and capital flows and 
>repressing finance, and that's why they targeted those things. You 
>don't have to be a conspiracist to believe that - you just have to 
>have been reading a good newspaper.
>
>Doug

Well, the view was (and is) that, as Jeffrey Frankel put it, the 
Asian Model is fine if you are a developing country with a relatively 
honest bureaucracy, but that it becomes a dangerous mode of economic 
organization as you approach the world's technological frontier.

Bureaucratic guidance is sufficient as a guide to future comparative 
advantage as long as you are catching up (as one guy once said, the 
more developed country presents to the past an image of its own 
future), but once a country's industrial structure approaches the 
world's best-practice frontier, even a bureaucracy as seemingly 
omnicompetent and Japan's MITI loses its touch. Universal 
bank-centered corporate-control  mechanisms lead to very high 
debt-equity ratios. Such mechanisms have some powerful advantages 
over the Anglo-Saxon system of mixed out-of-control self-reproducing 
managerial oligarchies, vulture capitalists, and takeover sharks. But 
they also have strong disadvantages, especially in the context of a 
financial crisis: high debt-equity ratios increase financial 
vulnerability and fragility, and can make an otherwise 
run-of-the-mill deflation or depreciation or other crisis into 
something that is *really* *bad.*

Add to this the fact that investors in London and New York need to be 
comfortable with your financial market if they are to get their 
capital to you on attractive terms, and the belief in the mid-1990s 
that East Asia needed to move several steps away from the 
Germano-Japanese toward the Anglo-Saxon model of capital markets 
seems to me likely to have been correct.

Brad DeLong