Brookings Trade Forum 2002 (2002) 211-226
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Panel: Views On Currency Crises
Does East Asia Need a New Development Paradigm?
Yung Chul Park
[Article by Morris Goldstein]
[Article by Jose Luis Machinea]
Viewing the twentieth century as a competition of economic models, many observers claim that capitalism proved its superiority in the semifinals of the 1980s. And Frankel and Roubini describe how some claim that the American brand of capitalism beat the Japanese brand of capitalism in the finals of the 1990s. 1 In an opposing view, Stiglitz argues that despite the financial crisis that devastated East Asia, many of the alleged institutional weaknesses blamed for the collapse may well have only played a minute role. 2 East Asia was not any more vulnerable to the crisis than other regions, and East Asia may remain the best model of development the world has seen to date. Stiglitz adds that the East Asian miracle was real and based on a set of sound fundamentals and public policies. 3
Between these two opposing views there is a third—that increasing demands for economic governance reforms and unwavering commitment to open trade and financial regimes, together with strong fundamentals under more transparent and democratic auspices, provide the basis for substantial optimism for the future of the East Asian development paradigm. 4
Supporters of Stiglitz's view would point out that structural vulnerabilities of the East Asian countries, which are long-standing problems, did not impede the rapid growth process for almost three decades before the crisis. Then why did they suddenly wreak havoc on these countries? Opponents of Stiglitz's view would then retort that these countries were adding new risk factors to an [End Page 211] already large set of vulnerabilities, thereby increasing their propensity to financial crisis. The debate on the causes of the East Asian crisis in 1997, whether the crisis countries were suffering from short-term liquidity problems or cumulative effects of old as well as new structural weaknesses, is not likely to end anytime soon.
The International Monetary Fund (IMF) and the World Bank invariably point to the structural problems in the public, financial, and corporate sectors as major causes of the crisis and assert that only a decisive and fast structural reform will ensure recovery and medium-term durable growth. 5 A number of recent studies on the East Asian crisis, while recognizing structural vulnerabilities, put more blame on distortions in international financial markets, in particular, panic and herding of market participants. To many advocates of the liquidity-panic view of the crisis, the rapid pace of recovery in 1999 and 2000 in East Asia was hardly surprising and was vindication that the region did not, in fact, need the IMF reform to stabilize its financial markets by restoring its access to international capital markets.
Five years after the crisis, East Asia is at a crossroads. If Frankel and Roubini are correct in their description, East Asian countries should not hesitate to replace entirely the precrisis model of development with an Anglo- American system of capitalism. 6 On the other hand, if the problems associated with the imperfections of international financial markets are more to blame as the causes of the crisis, East Asia would be better off by staying with the traditional East Asian model and at most reforming it to be compatible with changes in the domestic and global economic environments.
This paper searches for a new development paradigm that could help East Asian countries adapt to societal and political changes taking place in the region while retaining their precrisis vitality and competitiveness for durable growth in integrating into the global economy. Is the East Asian development model, as it was described by the World Bank study of the East Asian miracle, so outdated and out of touch with the realities of a new global economy that it should be repudiated in favor of an alternative model, such as Anglo-American capitalism? 7 If it is not, can the model be reformed in a way that will make it as viable for postcrisis...