Politics of East Asia's mirage

By Vedi R. Hadiz

JAKARTA (JP): The highly vaunted East Asian economic miracle is now quickly being dubbed the East Asian economic mirage.

As recently as the middle of last year, leaders of countries and international financial institutions now voicing their grave concern about the fate of East Asian economies, were virtually nothing but full of praise for the performances of the likes of Indonesia, Thailand, Malaysia, and South Korea.

Here in Indonesia, all but a handful of people swallowed whole such praise, as both the government and the affluent business and middle classes confidently charted a future that was supposed to be marked by even more magnificent riches and prosperity.

Now the whole edifice of sustained economic growth has all but crumbled. As various local and international experts and analysts survey the rubble produced by the currency crisis that is sweeping across East Asia like an angry tornado, everyone is asking what on earth went wrong?

One of the answers emerging, particularly in the Indonesian case, is not purely economic in nature. Many observers have pointed to the faults of a political system which allows for things like corruption, cronyism, and pervasive state and business collusion to thrive unchecked.

There is no way, they say, that the economy will mend itself if there is no movement toward significant political reform. The kind of political reform required is one that, at the very least, will enhance government accountability to the people and increase the degree of transparency in the whole business of running the government.

At the same time, they rightly point to a deepening crisis of public confidence in our institutions, which has bred distrust of just about every single pronouncement that any official would care to make about steps being taken to revive our economy.

The level of abuse of state power which has taken place in Indonesia in the interest of a few politically connected business groups is a problem which is well documented and familiar to everyone who lives or has lived in this country.

There is no need to travel through this familiar ground again except to reiterate that the heavily criticized practices involving state and business are an integral part of a carefully built structure of political patronage that, when well-oiled, has ensured that our antiquated, closed political system survives.

Although the Indonesian malaise is not confined to Indonesia, its greatest manifestation in East Asia may indeed be found here (after all, even before the crisis, some quarters already anointed us the most corrupt country in the world).

The problem of unchecked state and business collusion is something which has in fact slowly contributed to the internal rotting away of many other East Asian societies. And again, a large part of the problem is closed, partially democratic, if not largely authoritarian political systems, which need to be sustained by less-than-transparent economic practices.

The much vaunted East Asian "model" of economic development, at the most general level, has been characterized by close cooperation between state and business.

Such a model has been contrasted with the more free market, "laissez-faire model", which is supposed to have characterized the experience of countries that industrialized earlier in Europe.

Such a dichotomy, in fact, is rather misleading, as the later industrializers of Europe (for example Germany, in contrast to early industrializing Britain) benefited much from the pervasive and active intervention of strong states in the economy, especially in the early phase of industrialization.

Nevertheless, it is clear that in Korea, for example, all the giant, now troubled, chaebols, could not have prospered without preferential treatment from the state.

A variation of the theme is found in Malaysia, where the promotion of indigenous business groups as a matter of official policy is intertwined with the strengthening of the economic resource base of the ruling party, UMNO.

In Thailand, there was a long history of close relations between a very small capitalist class and politicians and technocrats. While that class is now much more diversified, a political system in which success depends on access to large amounts of money saw business and state officials reaffirm their close links.

Even Japan, the most advanced economy (and earliest industrializer in East Asia), is characterized by strong links between state and businesses, at the personal and institutional level, involving practices which are often quite nontransparent.

In Indonesia, virtually all large business groups, in one way or another, and at one time or another, have benefited from preferential treatment from the state power holders.

It is fair to say that in almost every East Asian country, the emergence of some of the largest business groups has been intertwined with the practice of state power.

But to a lot of people the economic model seemed to work, notwithstanding its various unsavory aspects. The trouble begins when the nontransparent practices become so excessive that they eat away at all the economic gain that the model was supposed to have produced in the first place.

This is certainly what has happened in Indonesia, despite the fact that the current economic crisis was initially triggered by external forces beyond our control. The same could be said to be true about some other countries as well.

Certainly, in Korea, state-business collusion ensured that, like in Indonesia, nothing was done to rein in the burgeoning debt of the politically connected private sector (though in this case, the borrowers were mostly banks), a failure which now has had devastating effects.

If part of the problem which is now faced by East Asian countries in turmoil stems from their respective political systems, then another concept that has been debunked by the current crisis, though perhaps to a lesser and much more ambiguous extent, is the function of uniquely Asian democracies.

Such democracies are supposedly rooted in indigenous Asian values that favor harmony, stability and mutual cooperation, values which are said to be supportive of rapid economic development in Asia.

Indeed the leaders of such countries as Malaysia, Singapore and Indonesia have been stridently antiliberal, arguing, for example, the unsuitability of the "Western" concept of human rights to their respective countries.

In Indonesia, even the notion of a functioning political opposition, able to check the actions of state officials, has been rejected in official circles as contradicting the values of Pancasila.

In Korea, where Confucian values of harmony are greatly esteemed but where some limited democratization has come as the product of a decade characterized by widespread mass unrest (in which workers and alienated sections of the middle class play an active role), the kind of state-business collusion alluded to earlier continues to thrive.

In years to come, a large number of popular books and articles will be written to explain what went wrong in East Asia in 1997.

Will the attachment to the East Asian economic model be relegated to the status of a passing fad? And will this also undermine the dubious notion of uniquely Asian forms of democratic political systems?

Dr. Vedi R. Hadiz is a research fellow of the Asia Research Center, Murdoch University, Australia.