Springing tigers and hulking elephant

REMADE IN AMERICA & 151; How Asia Will Change Because America Boomed: Jim Rohwer; Crown Business, New York, U.S.A. $.15.

MUCH OF what he writes about the breath-taking progress made by China and the countries of East Asia should make Indian readers of Mr. Jim Rohwer's book very sad because he repeatedly reminds us about this country being a "laggard" and he attributes this, among other things, to its pursuit of socialist economic policies.

Yet another disturbing aspect of how he looks at the economic scene is that though, we in India, may be very proud about our having remained a democracy while the rest of Asia has no such record, is that he does not attach much importance and the criterion for judging a country is the economic headway it has made. He shares the present western indifference to Chinese communism having just become a state dictatorship wholly devoid of any ideology.

The obstructiveness of democracy to economic reform could be seen from the fierce leftist opposition to the privatisation of insurance in India while China has been handing out licences to a large number of western insurance companies. While Indian leftist opposition to the country joining the WTO is just as fierce, nothing has stopped China from giving a positive response in spite of the prospects of its losing as many as 10 million jobs on the farm front.

With the upwardly mobile and the well-educated youth in every Asian country including India having been drawn to the U.S., writes Mr. Rohwer at the end of his book, "America has a unique chance as the current ruling power of deeply influencing the shape and nature of the rising power. It would be not just a pity and a folly for America's own interest to squander that chance. It would be a tragedy."

He has taken note of the fact that an India, bitten by the IT bug, is blazing new trails. The handling of the Y2K problem by India while the U.S. and the other advanced countries were baffled by it has not escaped his attention. He specially mentions Satyam's Y2K related projects accounting for 30 per cent of its revenues. The scene in India has begun changing from sloth to dynamism at the end of the last century.

The perception by the politicians and the economists that the collapse of communism in the Soviet Union virtually meant that the United States had won the Cold War must have been shared by Mr. Rohwer when he was writing this book about the newly industrialising countries of East Asia and China though he does not directly refer to it. What is far more remarkable but has gone very much unnoticed is that the collapse had begun much earlier from the 1970s when China threw open its economy to the multinationals, mostly from the U.S., and could then see them rushing in with their billions of dollars for investment. But China has been much luckier than the erstwhile Soviet Union in having been able to retain communism as just a dictatorship having nothing to do with the philosophy of Marx, Lenin or Stalin. It must appal communists everywhere, while having to face the most unpalatable truth that no other country in the world could match the patronage and protection which international capitalism enjoys in China.

The author quotes Shen Huaen, head of the State Economic and Trade Commission and a Central Committee member of the Communist Party of China as having bluntly told the managers of the State Owned Enterprises (SOEs) of his country, "China is no longer a socialist economy. It is a socialist market economy (the latest official phrase for moving to market) and if you can't cope with that, it's your problem, not mine." If China just did not care for democracy and its Government just did not have to reckon with any political opposition, the rich democracies of the West did not care either if their MNCs could strike it rich. Foreign direct investment into the country went up to $300 billions during the 1990s and is still going up. Export growth in 1997 generated almost 30 per cent of the total economic growth.

Mr. Rohwer does not take a dim view of India, though his admiration is mostly for China and the other East Asian economies where there is no democracy. "India has become one of the world's biggest software writing establishments and factories throughout Asia have been set up to turn out components.'' Much later in the book we are told that the bank financing in "East Asia puts greater power into the hands of politicians and bureaucrats to direct credit, sometimes to their chums and sometimes merely misguidedly through policy loans usually with no consideration of probability or even rationality." This could only mean the role, which "scams" have in the running of economies.

A consequence of this has been to push up the debt-to-equity ratios to well above 70 per cent & 151; which could send shivers down the spines of bankers in India. India, China, Taiwan and the Philippines were the exceptions the economic growth of which remained solidly positive in 1997-98 in contrast to what was happening in East Asia.

Though Mr. Rohwer does not so very directly mention it, it is doubtful if the staggering volume of property development brought about by the eightfold expansion of office space in Bangkok and Jakarta and the giving of "corporate" loans in Malaysia for "controlling" shareholders in companies to use the money for personal stock market speculation would have been possible except through unbridled graft. He recalls a comment by Marc Faber, a Swiss "contrarian" about one crook replacing the other in Asian economies.

The author recalls Trotsky's prediction more than 70 years ago after he was exiled by Stalin to Mexico that the U.S. would be the "furnace on which the future is being forged". It would seem that this is coming true in East Asia and India could be a latecomer with its economic liberalisation and globalisation, which could be speeded up by IT and the Internet. He draws attention to how instant communication remained a dream till the mid-1980s even to U.S. Presidents until the CNN came on the scene to bring the Gulf War to drawing rooms.

An instance of the uncompromising requirements having to be met for achieving increases in sales mentioned by Mr. Rohwer is that of a successful redesigning and manufacture of washing machines by a Chinese firm after its discovery that the peasants who were buying the machines earlier were clogging them up with mud while using them to wash vegetables.

The reforms which badly performing state-owned enterprises in China needed could be effected because it could count upon the absence of any political opposition in the one-party state. Among the demands which the SOEs had to meet for getting bank loans to restructure themselves was the laying down of a minimum of output valued at $50,000 per worker. He writes about many cases of inefficient and bad management like that of the Korea's Daewoo and the huge debts and losses it had run into.

However, the scenes quickly always became brighter after an intelligent and quick implementation of drastic steps.

The unswerving attention given to the continuous upgradation of technology and the sustaining of high levels of education as well as the internationalisation of their economies and production with foreign direct investment sustained the high levels of prosperity in Singapore and Hong Kong.

The message given out by the distance, which now separates developing countries like India, which had less than two decades ago believed in import substitution and building up self-reliance is simply that about the return of an earlier wisdom implicit in an international division of labour.

It might appear that while India has paid a very heavy price for having opted for such a choice, unfolding history might reveal whether a focus on immediate and easily achievable gains, which the East Asian economies could make, was wholly wise.

India could shed its earlier economic policies and switch over to globalisation without hurting itself.

The rapid recovery by these economies from the melt down from which India remained immune should not blind them to the instability, which the huge FDIs from the MNCs could be vulnerable.

The springing, leaping tiger & 151; an imagery that the NICs of Asia threw up & 151; could wear itself out much faster than the hulking elephant.

CVG

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