Asia's Bad Old Ways.

This paper emphasizes the need for major social and political changes aside from economic policy reforms in Asia to rectify its deeper problems. In 1998, the collapse of the Thai baht dragged East and Southeast Asia through a default spiral as exchange rates plunged and equity and property values collapsed. Governments have been slow to enact reforms, so nationalized financial assets have not been restructured, definitions of nonperforming loans are sham, independent regulators do not enforce stock market rules, and litigation still accomplishes too little. In East Asia, capital is allocated according to the notion that a strong state's proper role is to help coordinate the flow of external financing to companies. Asian policymakers learned from the 1997 crisis that closed production systems are inflexible and that opening up requires stronger external legal systems and less state favoritism. Rather than pressing directly for policy reforms in the short term, which might provoke resentment without spurring lasting changes, Washington should put its faith in more indirect forces. The conglomerate and family models of business organization today, 2001, still make it difficult for companies to adopt the preferred business model for global competition. East and Southeast Asian firms must learn to better manage the risks inherent in the international economy, without depending on favoritism and government bailouts.