Guest fountainhall Posted September 3, 2010 Posted September 3, 2010 With the west still struggling to come out of its worst recession for 80-some years, much of Asia has already emerged and is well on its way to record growth rates again. One reason perhaps is that Asia went through all this 13 years ago, and so its banking systems, for one, are in much better shape to handle the crisis this time around. Having lived through the Asian economic recession, I got to thinking about how recessions are perceived in the west and the east, and how the United States in particular has been guilty of double standards. This was brought home to me in an excellent book I have just read: The Great Hangover – 21 Tales of the New Recession. It is a series of relatively short, sharp, enlightening articles from the pages of Vanity Fair penned in 2008 and 2009. Topics range from the role of derivatives and mathematical models, hedge funds, the bank bail-outs, the AIG disaster, Fannie Mae and Freddie Mac, “Hank Paulson’s Longest Night”, and on to the scam artists Marc Dreier, Allen Stanford and, the greatest of them all, Bernie Madoff. Dry as all that may sound, it is a terrific read, 21 articles in easily digestible chunks, with a Preface: “Where did all the Billions Go?” and an Afterward: “The Blame”. One small article (only 7 pages) is particularly relevant to Asia - “Wall Street’s Toxic Message: Global Consequences of the Meltdown” by Joseph E. Stiglitz. In his first paragraph he writes: No crisis, especially one of this severity, recedes without leaving a legacy. And among this one’s legacies will be a worldwide battle over ideas – over what kind of economic system is likely to deliver the greatest benefit to the most people . . . In much of the world, the battle between capitalism and socialism – or at least something that many Americans would label as socialism – still rages. While there may be no winners in the current economic crisis, there are losers, and among the big losers is support for American-style capitalism. It has consequences we’ll be living with for a long time to come. Whereas the fall of communism seemed to herald a new age of capitalism, with the collapse of the great banks and financial houses, that age is now over. So, too, is the debate over ‘market fundamentalism’, the notion that unfettered markets, all by themselves, can ensure economic prosperity and growth. Today only the deluded would argue that markets are self-correcting or that we can rely on the self-interested behavior of market participants to guarantee that everything works honesty and properly. He then reminds readers of an interesting fact. 190 years ago, one-third of the world’s gross domestic product was in China! But corruption within the Manchu regime, colonial exploitation and unfair trade agreements brought China to its knees, to a point where by 1950 China’s economy constituted less than 5% of global GDP. The pendulum is swinging back with a vengeance! Stiglitz looks at the roles of the World Bank and the IMF, and then goes on to compare the 1997 Asian economic crisis with the 2008 western one. During the East Asia economic crisis, just a decade ago, America and the IMF demanded that the affected countries cut their deficits by cutting back on expenditures – even if, as in Thailand, this contributed to a resurgence of the AIDS epidemic, or even if, as in Indonesia, this meant curtailing food subsidies for the starving. America and the IMF forced countries to raise interest rates, in some cases by more than 50%. They lectured Indonesia about being tough on its banks – and demanded that the government not bail them out . . . The contrasts between the handling of the East Asia crisis and the American crisis is stark and has not gone unnoticed. To pull America out of the hole, we are now witnessing massive increases in public spending and massive deficits, even as interest rates have been brought down to zero. Banks are being bailed out right and left. Some of the same officials in Washington who dealt with the East Asia crisis are now managing the response to the American crisis. Why, the people of the Third World ask, is the United States administering different medicine to itself? Many in the developing world still smart form the hectoring they received for so many years: they should adopt American institutions, follow our policies, engage in deregulation, open up their markets to American banks so they could learn “good” banking practices, and (not coincidentally), sell their firms and banks to Americans at fire-sale prices during crises. Yes, Washington said it would be painful, but you will end up the better for it. He goes on to remind readers that Asia and the rest of the world still need America’s economy to recover. But the game has now changed. He accepts that - democracy and market forces are essential to a just and prosperous world but then adds The economic crisis, created by America’s behavior, has done more damage to these fundamental values than any totalitarian regime ever could have. The Great Hangover: 21 Tales of the New Recession Edited by Graydon Carter Published 2010 by Harper Perennial www.harperperenniel.com Quote
