In search of Asian capitalism

By Harry Bhaskara

JAKARTA (JP): How will Asian businesspeople fare in the era of globalization? Given their habits in business relations, where collective rather than individual initiative rules, will they fare well?

This was one question that came up during the recent Panglaykim memorial lecture here featuring Dr. Soogil Young, a senior fellow with the Institute for Global Economics.

To start with, there is no one particular model of capitalism in the world, Young said. "They are not all bad."

The world of capitalism, as talked about by classical economists, suggests impersonal relationships, he said. It exists in the United States where cut-throat competition is possible due to its unique cultural and historical background.

But this is not the case in Asia or Europe, said Young in his lecture at the Centre for Strategic and International Studies on July 27. He said he himself would not really be able to compete with his fellow South Koreans, as he virtually knew "about half of the population" of the country.

"If a man treated me unfairly I wouldn't be able to take him to court because he is either my friend, or a friend of a relative's relative."

South Korea, like other Asian countries, he said, is a society where compassion rules, making impossible "impersonal" capitalism. In Asia, capitalism must be tempered with compassion, Young said.

Young, who studied economics in the United States and once served as the South Korean envoy to the Organization for Economic Cooperation and Development (OECD) in Paris, said Asia had many similarities with Europe; their populations had shared the same land for hundreds of years. This resulted in very close relationships, which hampered competition, he said.

"That is why Europeans have social democracy," Young said, adding that elements of this social democracy were present in Asian societies.

"In a sense Asians are probably more susceptible to the European kind of capitalism than the American kind," he said. Asians, including Indonesians and Koreans, will eventually develop their own version of capitalism, Young said.

An appropriate form of capitalism in such countries would depend on society and the market forces.

Nevertheless, he said, there are elements that drive all versions of capitalism to look much more like each other over time. This reflects globalization, the coming down of national borders. South Korea, he cited, which has a reputation for xenophobia, now has more and more firms with foreigners in their management.

He also said antiglobalists had legitimate concerns. "They are right in identifying and presenting the problems .... Globalization is not all good. It offers opportunities. It also offers risks, but as ruled by the existing international bureaucracies.

"I don't think we are dealing adequately and comprehensively enough with all the problems of governance. So the new form of international or global governance has to evolve ...."

The antiglobalization movement will be "an element of force to drive the development of global governance into a more appropriate form" of capitalism, Young said.

He related South Korea's attempt to combine democracy and the market economy; while in democracy the majority rules, in a market economy the competition rules. Combining the two is not an easy feat. Often the result is, he observed, that competition becomes the rule in the political system and the majority rules in the market system.

This is a mix-up that developing countries should avoid, Young said. The OECD countries have succeeded in putting majority rule in the political system and competition in the market economy, he said, while South Korea has not.

"In the worst scenario, the market principle becomes adulterated and the political system becomes divided and disintegrated as a result," Young said.

This is a common problem faced not only by South Korea but by all East Asian countries, including Indonesia and China.

"Here, I think, we all have sympathy for each other, Korea for Indonesia, Indonesia for China and so on, and I think this is one great area where we have to work together," he said.

Young said the parallel development of democracy and the market economy in Asian countries was inevitable, and not one of choice.

A participant of the lecture said South Korea had fared better than Indonesia, which had to grapple with so many issues like disintegration, decentralization, a weak legal system, a disoriented government and a domestic security problem.

Yet South Korea has never been as divided as it is today, Young replied. Politically, the southwest and the southeast regions of the country have always been divided, while Seoul has ignored the agricultural region of the southwest for decades. Most political leaders and generals come from the southeast, while President Kim Dae-jung comes from the southwest, which has upset the traditional political balance.

"All the traditional differences have suddenly come out into the open," he said, which has caused numerous problems in all sectors.

Young said South Koreans disagreed on numerous issues such as how to handle the press, the large business groups, or chaebols, and the medical profession.

"Today, the pharmacists are fighting with the doctors and both of these groups are fighting against the government," he said.

On security problems, Young said, many South Koreans still regarded their northern neighbor as an enemy. He acknowledged that South Korea's judiciary might be better than Indonesia's, but it still had many loopholes.

"Korea and Indonesia have more similarities than differences," he said, "And this provides room for future cooperation."

In dealing with the challenge of globalization, Young said South Korea should abandon its old paradigm of development, which worked well from the 1960s to the 1980s.

This paradigm comprised four pillars: a government-managed economy, a national firms-based economy, a resource-based economy and a corporate welfare system.

"All the structural problems which are still inflicting the Korean economy may be seen as originating from this paradigm. It is easy to see that such attributes as nontransparency, moral hazards and corruption should arise as essential aspects of this paradigm.

"This may be considered as a variant of capitalism, but one adulterated with bad governance. In this sense, Korea's old development paradigm was an adulterated version of capitalism," Young said.

Such capitalism worked in the past with an authoritarian government and a relatively less sophisticated economy with a heavy reliance on cheap labor, he said, while the global economy was still in the stage of shallow integration.

In the mid-1980s globalization arrived full throttle in South Korea, forcing a need for the country to change its old development paradigm.

Young said the new development paradigm that South Korea should evolve comprised a different set of four pillars: a market-led economy, an international firms-based economy, a knowledge-based economy and a welfare-state economy.

He stressed that the new paradigm would not work unless good governance took root.

"As the shift to this new development paradigm takes place, the development regime becomes one spontaneous development which derives its dynamism from the quality and creativity of its individual constituents, rather than from firms," Young said.

Therefore, the government's economic policy, he said, should be focused on investment in human capital, as well as adapting to market discipline and global competition.

The writer is a journalist with The Jakarta Post. The Panglaykim public lecture series began in 1987, a year after the death of the noted economist and educator.