The world, Through a Glass Darkly


September 17, 1993|By JONATHAN POWER

UNITED NATIONS, NEW YORK — United Nations, New York. -- The word is slowly beginning to sink into the West's subconscious mind -- its children born today will not be competing so much with each other as with the fast-growing economic power-houses of Asia and Latin America. Yet the picture for most Westerners still looks like a murky double-exposure, blurred with our old traditional images of over-worked peasants, rib cages prominent, parched fields and hyperventilating shanty towns, almost breathless for lack of space and opportunity, their overcrowded children riddled with disease.

The likelihood is just as the older generation saw Japan leap from cheap imitation to vying for the world's number one position, and the present generation has seen South Korea's even more phenomenal passage from rags to riches in the short span of 30 years, the up-and-coming generation will live to see such total transformation repeated twelvefold, from India to Indonesia, from Malaysia to China, from Argentina to Mexico. Already the middle class of India is as large as Germany's and France's combined.

Another blur in the West's subconscious mind is that this apparently sudden leap forward is very much connected with the introduction of the free market and the demise of state involvement in economic decision-making.

While it is true that the last 10 years have been the age of economic liberalization par excellence, the fact is some of the most outstanding performers have industrialized using a panopoly of controls and subsidized credit. The present-day withdrawal of government intervention has been carried out in an orderly fashion, following success. It has not been, as is often portrayed, a rout after failure. And today, having mixed the two so well, as Japan has always done, Asia now has the chance to seize the leading position in world economic affairs during the coming century.

Latin America, by contrast, is in danger of listening too much to the free marketeers. The debt crisis of the 1980s made Latin America hostage to the Western banking community and the ethos of Reagan-Thatcherism. ''Policy shock'' was the medicine and the pills included fiscal austerity, decontrol, trade liberalization, encouragement of direct private investment and extreme privatization. Much of this was good, but it has gone so fast and so far that Latin America is now more market-oriented than Asia.

On the credit side, the ''capital flight'' that, for decades, sucked wealth out of Latin America has dramatically reversed direction. Foreign direct investment is growing. But set against that is the lack of dynamism in exports, the recipe for Asia's success. An obsession with the free market has led to a paucity of government support and a well-targeted protection of domestic industries to build up strength to face the outside world. The pendulum has swung too far. Asia did not make this mistake.

A new report published yesterday by the United Nations Conference on Trade and Development takes this argument a step further, focusing on the lessons for Africa. Pressed for the best part of a decade by the World Bank and the International Monetary Fund to prune, privatize and popularize, recovery remains precarious and growth is still slow. The new seeds of private economic activity have not sprouted and yet the old state-controlled producers have been killed off.

The free market is an important part of the revolutionary economic times we live in. But once we move beyond rhetoric we find very few of the world's success stories have embraced it entirely. Indeed, if there is one danger for the new generation,it is that if they hand everything over to the free market they will find the day that Asia overtakes them, and maybe even Latin America, coming sooner than it otherwise would.

Jonathan Power writes regularly on Third World issues.

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