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The Changing Dynamics of Asia-Pacific

by Ramesh Thakur
Vice Rector, United Nations University

The following analysis expresses the author's personal views.

ASIALINK - July 8th, 1999

''Asia' is a geographical construct developed by the Europeans to differentiate the European 'self' from the Eastern 'other'. In reality the continent is much too diverse on all major dimensions to permit simple generalisations. Asia is the largest of all the continents: it occupies 30 percent of the world's surface area and its peoples account for 56 percent of the world's total population. Asian civilisations encompass some of the world's major religions and philosophical systems (Buddhism, Confucianism, Hinduism, Taoism). Islam too has a strong presence in the continent. Its languages are rich, diverse and spoken by large numbers of people.

'Regionalism', the sentiment or consciousness of a common identity, is culturally or politically constructed: there is an ideational as well as a material basis to regionalism. Australia's involvement with the Asia-Pacific region is inevitable, irreversible and probably even desirable. But the completion of the transition from a narrowly Eurocentric outlook to a more balanced and nuanced worldview will be neither uncontroversial nor smooth. Mutual adjustments and accommodation will be required.

However, Australia is Asian in the geopolitical sense, and has key economic and security interests in the region. Rather than being neither Western nor Asian, therefore, Australia successfully straddles both worlds. John Howard is right; Australia does not have to choose between its history and geography: 'Australia draws unique strength from the interaction of its history and geography' (DFAT 1997: iv; emphasis added). Historical and cultural links to Europe and North America enhance Australia's value to Asian countries; propinquity to Asia increases its usefulness to Euro-Atlantic countries. Multicultural diversity at home underpins the breadth and depth of our relationships abroad. It gives us European and Asian language skills, cross-cultural expertise and international family and social connections. Bio-cultural diversity also promotes vigour and adaptive capacity in a rapidly changing world. Therefore Australia's wider international relationships will continue to be important for political, economic, security and identity interests.

Still, by the end of the 1980s Australia stood at the crossroads of history and geography. The tussle between collective memory and collective destiny called for intellectual and emotional adjustments that were wrenching for many Australians. Where in the past Australians fought against their geographic reality in seeking security, from Asia in defence, trade and immigration, by the 1990s they sought security in Asia through cooperative regional arrangements.

The Emerging Regional Security Architecture

The search for security and the return to prosperity in Asia-Pacific continues apace. International relations in the Pacific have lacked the institutional structures that have absorbed periodic stresses across the Atlantic and helped to stabilise relations there. The multilateral structure across the Atlantic has also firmly anchored an American presence in Europe. The strategic rationale for US presence in the Pacific has never been as stark and simple, and the cultural and political divides across Asia-Pacific are deeper and more variegated. The security order of the region is caught between an anachronistic Cold War framework and embryonic, untested regional approaches.

One axis of the Cold War consisted of the mutual hostility between the United States and the Soviet Union as superpowers; the second axis was a transcendental conflict that divided the world into two groups of states. For the first time in human history, two powers had emerged with antagonisms which embraced not just Europe or Asia but the whole world. The Cold War conflict was thus a global struggle centred on and dominated by two countries. These two were able to structure the pattern of international relationships because of a qualitative discrepancy in military capacity and resources. And the conflict was transcendental because it involved a clash of ideologies: the existence of a strong Marxist and capitalist state that could not accept permanent relations with each other, believing instead in the eventual destruction of the other. The ideological conflict is over and the mutual deterrence structure of the Cold War period is now obsolete.

The framework for the world order resting on superpower rivalry was adopted at Yalta in 1945. Reflecting the two theatres of the Second World War, that order had two geographical components: Europe and Asia-Pacific. The principal elements of the European order included:

• The maintenance of Soviet strategic and political dominance over Eastern Europe;

• The perception by West Europeans that the overwhelming and proximate power presence of the Soviet Union in Eastern Europe was a threat to their security;

• The wish of the West Europeans to maintain a visible and structured alliance with the United States for the maintenance of security that was no longer attainable through the purely European balance of power;

• The reinforcement of alliance ties by common interests and values of other kinds which helped to absorb the strains caused by differences in policy and interests; and

• The acceptance of the solution of the problem of German power—which had caused two world wars—by the physical division of Germany along the Cold War axis.

The Yalta-based order for Europe has crumbled, but not for Asia-Pacific. Germany today is united and democratic, on a moral par with Britain, France and the United States and on a political par with Japan and Russia. The shift of the political capital from Bonn to Berlin completed one of the most remarkable transformations since World War II. NATO enlargement and the air strikes on Serbia symbolically rubbed Russia's nose in the dirt of its historic Cold War defeat.

The system of structured security and stability achieved in Europe seems to be as distant as ever in Asia-Pacific. There is a greater variety of political systems in Asia-Pacific, ranging from robust and explosive democracy in India and fragile democracies in Bangladesh, Nepal and the Philippines and something less than full democracies in many other countries, to communism in three countries. In addition to enduring low-intensity insurgencies, many countries are characterised by socioeconomic fragility and regime brittleness. The disparities in social and economic indicators are greater in Asia.

Internal developments in the old USSR had immediate and far-reaching consequences for Eastern Europe, but have lacked a similar resonance in the Asian communist countries. Communism in Eastern Europe was installed and maintained by the barrel of Soviet Red Army guns. Its durability in Asian countries flows partly from its fusion with nationalism. Hence the domino effect of the collapse of communism in the Soviet Union on the satellite regimes in Eastern Europe in contrast to the capacity for independent survival of the Asian communists.

European achievements in arms control and disarmament have not been matched by comparable movement on Asian-Pacific fronts. Indeed Asia-Pacific was one of the few regions in the world where military spending was still rising until the 1997 financial meltdown. Part of the difficulty in exporting success across regions arises from the fact that while Europe is a continent, Asia-Pacific is mainly oceanic. Unchecked arms buildups reflect the existence of more multiple sources of threat to the peace and stability of Asia-Pacific than of Europe. The kaleidoscope of cultures, cleavages and conflicts in Asia-Pacific does not permit a simple intercontinental transposition of the European security architecture.

The political infrastructure to sustain peace and prosperity in Asia-Pacific includes the network of dialogue and consultations already in existence. The most substantial forum is ASEAN, including the post-ministerial conference with dialogue partners and, more recently, the ARF. The main purpose of the multilateral security dialogue forum is to cushion the potentially destabilising effects of regional and global changes in the post-Cold War era. The ARF is unusual in that those in charge of its establishment, agenda and management are not the major powers, the driving seat being occupied by ASEAN; and in the primary focus of security concerns being Northeast Asia. In combination with CSCAP and the regional network of Institutes of Strategic and International Studies, this places ASEAN at the hub of Asia-Pacific's governmental and second track security dialogue, confidence building and preventive diplomacy activities.

ARF sceptics describe it as little more than an optimistic illusion and the Track Two channels as a self-contained cosy network of think tank specialists. The scepticism is difficult to fathom. The ARF is still in its infancy. It is well placed to serve as the consolidating and legitimating instrument for regional security initiatives and confidence building measures. It is on public record as supporting such measures as the UN arms register, exchanges of unclassified military information, maritime security cooperation, regional peacekeeping, preventive diplomacy and non-proliferation. When we consider how painfully difficult it has been for Europe, a well established economic and political entity, to manage the conflict in Bosnia, our expectations of the ARF as a conflict management institution must remain modest. Asia is both more diverse than Europe and lacks the ballast and texture of the theory, history and practice of European cooperation and integration.

The Lead Players

The structure of power relations in the region is more fluid and complex than in Europe, resting on five powers: America, China, Japan Russia, and India. Indonesia is the largest and most populous country in Australia's neighbourhood and occupies a strategic position astride its northern approaches through which 60 percent of Australia's exports pass (DFAT 1997: 61). Its size and location assure it a lasting leadership role in Southeast, and potentially East, Asia. But, for reasons of space, it is not considered any further here.

The United States

Kosovo notwithstanding, the United States is in no position to impose Pax Americana. But equally, no major world problem can be settled by working against the United States. Washington will remain reliant on coalitions whose membership may shift from issue to issue and region to region, but whose core will consist of NATO allies, Japan and other 'like-minded' democracies. Some suggest that American interests in Asia-Pacific are peripheral or less urgent than in Europe. Yet US commerce across the Pacific is more than one-third bigger than that across the Atlantic, and the two-way flow of investment is substantial. Its strategic interests have been attenuated by the end of the Cold War and the disintegration of the Soviet Union. Its economic interests extend only to a few countries like Japan, China, South Korea and Taiwan.

The metaphor which best suits US perceptions and preferences is that of the balancing wheel. Washington is the hub with spokes running to Japan, Taiwan and South Korea in Northeast Asia; the Philippines, Singapore and Thailand in Southeast Asia; and Australia in the Southwest Pacific. If allies are prepared to accept responsibility for the defence of home territories to the best of their abilities against the backdrop of a strategic 'over-the-horizon' US military presence, then a continued US commitment to the peace and security of Asia-Pacific will meet US interests and disposition. More important than a resident US military presence is a credible 'surge capacity', by such means as prepositioning of equipment and prior agreements with potential host governments for launching and sustaining US military operations.

Most regional governments do acknowledge that the Pacific security framework established by the United States has been an important shield behind which they have pursued their search for peace and prosperity. In their view, the continued strategic engagement of the United States will remain the cornerstone of Asian Pacific security. It is not that the regional governments trust or love America the most. Rather, they fear America the least. On balance, Australia's close military and political links with the United States are more an asset than a liability in structuring the pattern of its relations with Asian neighbours.

Japan

Existing defence links throughout Asia-Pacific already provide the necessary political and strategic infrastructure to support the US security commitment to the region. The most important of these is the US-Japan Mutual Security Treaty. (The China-US relationship, by contrast, is the most delicate and difficult.) The United States is the biggest, richest, most productive, most innovative and the best balanced economy in the world. Japan is the world's largest single source of surplus savings, the world's biggest capital investor and aid donor, and the world's leader in the organisation and technology of manufacturing. America is the most universal and Japan the most singular of modern societies.

Japan was one of the chief beneficiaries of the Cold War. During the Cold War the United States allowed Japanese exporters generous entry into its markets in return for a strategic partnership in an Asia dominated by two communist giants.

With the end of the Cold War and the disappearance of the Soviet threat, Washington had no reason to put strategic interests ahead of commercial calculations in its dealings with Japan. With the basis of the strategic alliance having dissipated, will America and Japan come into conflict? This is unlikely because the disparate and sometimes conflicting US-Japan interests have been held together (unlike EC-Japan relations) by a complex, multidimensional and growing web of relationships.

Japanese contributions to regional security arrangements are likely to be viewed with equanimity in Western capitals around the Pacific Rim, though not in all others. Racially homogeneous and not generally welcoming of foreigners, Japan has no tradition of cultural linkages and intercourse in Asia-Pacific. A militarily resurgent Japan would send ripples of anxiety around the Asian-Pacific countries even in the absence of any indications of hostile intent.

A process of mutual reinforcement is at work. An independent Japanese security role is difficult to visualise unless there is a breakdown in the bilateral security relationship between Tokyo and Washington. An independent Japanese security role in Asia-Pacific would set off so many alarm bells around the Pacific Rim and provoke such a dangerous backlash from China, Korea and others that it is difficult to visualise policy makers allowing the US-Japan security relationship to lapse.

Three critical events may mark 1998 as a watershed year in heightening the sense of urgency in Japan: the nuclear tests by India and Pakistan in May, the visit to China by President Bill Clinton in July, and the test-launch of a missile/rocket by North Korea in August. Together, the three events unsettled the parameters of Japan's foreign and security policy. Further revisions of the US-Japan defence guidelines and the decision to take part in joint theatre missile defence (TMD) flowed from the triple shocks of 1998.

Australia and Japan are natural trans-Pacific friends and allies. They are two of a small number of full-fledged industrial liberal democracies in Asia-Pacific. They are the northern and southern anchors of the Western alliance system. Within the alliance, both pursue 'good international citizenship' in international peacekeeping, human rights, foreign aid and so on. And they support each other: they are the joint originators of APEC, Japan backs Australia's inclusion in ASEM, and Australia encourages a greater Japanese role in the region.

In the last few years Australia and Japan have reinvigorated and reinterpreted their separate military alliances with the US, and have also begun to extend the scope of their own bilateral military relationship. Trilateralising the military relationship would anchor the US more firmly in the region, formalise their security and trade interests across and up and down the Pacific and provide ballast to the fledgling ARF. As Japan gradually assumes progressively greater responsibility for its own security, the Canberra-Tokyo congruence on foreign and trade policy interests will be reinforced still further.

China

Sinologists argue that China acts on the adage that one mountain cannot accommodate two tigers. Beijing's policy is described as one of restraining Japan and constraining India, its only serious Asian rivals (Malik, 1999). The relationship between Japan with its economic might and technological edge and China with its massive population and area will shape the new order in Asia-Pacific. The Chinese argue that a political role for China is welcomed by Asian-Pacific countries as a counter to residual US military and Japan's growing economic might.

Sino-US relations struck rough seas in 1999 that left the rhetoric of a strategic partnership of 1998 as a fading memory. China was disillusioned by the firming of the US-Japan alliance, the prospects of a theatre missile defence (TMD) system for Northeast Asia, and President Bill Clinton's inability to cut a deal on the terms of China's WTO membership. Washington was rocked by charges of sustained and successful Chinese spying on US nuclear secrets, Beijing's failure to control North Korean missile/rocket firing capabilities, and the apparent reversals on the human rights front. China denounced the NATO air strikes on Serbia as illegal aggression on a sovereign state. The bombing of the Chinese Embassy in Belgrade was interpreted as a deliberate attempt to weaken and humiliate China. In Beijing's view, China remains the principal obstacle to US hegemony in Asia, hence the US determination to undermine China. Some military analysts began to call for a resumption of nuclear testing and missile sales in order to demonstrate China's ability to defy 'Pax Atlantica'.

Like Europe, Asia-Pacific is caught between the desire to keep the US fully engaged in the region to underwrite stability and prosperity, and the search for a sharper and autonomous regional identity. The two potential stabilising powers from within the region are China and Japan. A core element of Chinese nationalism, reinforced by the NATO attack on the Chinese Embassy in Belgrade, is its 'self-image as a victimised developing nation' (Bessho 1999: 76).

Western perceptions of China tend to oscillate between the extremes of confrontation and fascination. The inflated importance of China is based on its possession of nuclear weapons; its very large defence forces that are being rapidly modernised; its huge geographical area, population and resources; and its growing prosperity. Reunification of Hong Kong added to China's already massive economic weight. By the year 2000-something, China will overtake the United States as the world's biggest economy, be the dominant power in Asia and the new global superpower....

A reality check is called for. While economic reforms have been successful, their depth, breadth and resilience is still suspect. Large enterprises remain in state control and are very inefficient. Economic reforms still operate in a centralised and potentially volatile political environment. At some stage the paradox of a deregulated economic and tightly controlled political system might explode into open contradictions. Raw size and strength do not a middle-income country or a middle power make. China is neither at the cutting edge of technology nor innovative.

Contemporary interpretations of China as the emerging superpower produce two opposite lines of analysis. The benign view sees China taking its rightful place in the management of regional and world order. The more pessimistic assessment worries about China's potential for mischief. Two sets of paired observations form the basis of such divergent interpretations. First, China has no history of territorial expansion and forcible conquest of foreign people. But nor is it ever prepared to renounce existing territorial claims. It is ready to use force to defend them. Second, for the first time in two hundred years the world has to cope with a united and powerful China. But so too does China have to come to terms with its status as the emerging superpower. Unfortunately, China has no historical, philosophical or literary tradition of diplomatic intercourse as a great power in a system of great powers. Its inheritance is that of the Middle Kingdom.

Peace cannot be maintained in Asia without accommodating China's interests. But nor will it be durable if based principally on a policy of appeasement. The trick will be to strike the right balance between containment and appeasement. A policy of constructive engagement has exposed the people of China to international influences and facilitated the development of a large market-oriented sector in parts of China's economy. Asian-Pacific governments remain keen to integrate China more fully into open regional and global trading arrangements, to 'domesticate' it into the Asian family of nations.

Russia

Russia has not been an active player in Asia-Pacific, for two sets of reasons. Firstly, since the breakup of the old Soviet Union, Russia has been too preoccupied with internal affairs to worry much about its proper role in Asia-Pacific. Russia's foreign policy is criticised at home for having drifted into a search for 'donors and sponsors'. Secondly, even though the Soviet Union was as much an Asian as a European power, the successive Yeltsin administrations have had a solely Western orientation. Yet Russia is a Eurasian country, with 10m km2 of its 17m km2 total territory lying in Asia.

Other independent republics of the former Soviet Union have been rediscovering pre-Soviet geopolitical identities. The Central Asian republics, characterised by relative poverty and a volatile ethnic mix, have been detached from Europe. There are tantalising hints of the re-emergence of the traditional map of Central Asia which used to comprise Afghanistan, Iran and the Central Asian states as a geopolitical whole. At the very least, the waning of Russian influence leaves room for other outside powers (Turkey,: Iran, Pakistan, India and China) to establish cultural, economic and political links.

India

India's identity as an Asian-Pacific country is also unresolved. It is unquestionably Asian. Moreover, by virtue of size, geopolitical location, past political influence, present military power and future economic prospects, India must be accommodated in any discussion of the emerging trends in Asia-Pacific. It could one day prove useful in balancing the spread of Chinese influence in Southeast Asia. For the present, and its new status as a declared possessor of nuclear weapons notwithstanding, India is neither powerful enough to bully, rich enough to bribe, nor principled enough to inspire (Thakur 1997). No amount of nuclear tests and weapons will bring the international influence and respect that India craves until its economic policies are sorted out and its economy shows sustained growth, expansion and sophistication. Conversely, with such economic success, nuclear weapons would be surplus to requirements in the drive to Asian and global status and prestige.

New Economic Order

The defining characteristic of Asian-Pacific salience in world affairs has been its economic dynamism. The dominance of economics in international relationships is pervasive and unquestioned. The 'balance of power' is fundamentally determined by the balance of economic strengths, with the latter in turn being a function of capitalist enterprise and organisation. Capital and technology are more important determinants of national power in international relations than natural resources and population and are routinely factored into any sophisticated definition of 'strategic potential'.

In the quarter century between 1960 and 1995, the East Asian economies produced the fastest rise in incomes for the biggest number of peoples in human history. The economic success was attributed to several factors: sound economic management by relatively stable political regimes which ushered in rapid structural change, an industrious and increasingly well-educated workforce, and high rates of savings and investment by instinctively thrifty peoples. This was backed by the adoption of a managed-market strategy of economic development which struck a balance between the interventionist and the free market state. Flushed with economic success, Asia's long-serving leaders (Suharto, Mahathir, Lee Kuan Yew) grew in self-confidence and stature to the point where they and their followers openly lectured the West on decaying values, political institutions and social cohesion.

In an article that has gained retrospective respectability, Paul Krugman (1994) argued that the 'Asian miracle' had no clothes: it was based on massive inputs of capital and labour, not on efficiency gains. The bubble burst with a currency crisis that began in Thailand in July 1997. No one predicted the ferocity of the market reaction to Thailand's problems or the severity and spread of contagion to the rest of the region. As market players responded to the herd instinct, the contagion spread quickly to Malaysia, Indonesia, Hong Kong and South Korea. The Asian miracle became the Asian malaise.

Nevertheless, the underlying fundamental strengths of regional economies makes their recovery and renewal a matter of when, not whether: budget surpluses, flexible labour markets, low taxation, low inflation, high domestic savings rates, emphasis on education and training, and a strong work ethic.

Causes of the Asian Financial Crisis

The scale and persistence of the resulting crisis could make it a defining moment in the history of East Asia, comparable to the great depression of the 1930s in the capacity to mould economic policy and shape economic thought in fundamental ways. Similarities from then include excess capacity, competitive devaluations, collapses in property and equity markets, banking crises and policy paralysis. The affliction that hit Asia was a crisis of governance, reflecting institutionalised patronage and corruption, weak central banks, and lack of transparency, accountability and teeth in regulatory arrangements. As well as providing a vivid illustration of the costs of 'crony capitalism'—where profits are made not through the free interplay of market forces but as a result of access to credit lines and purchasing orders through political patronage—the Asian crisis reinforced the benefits of competitive markets, transparent and effective regulatory institutions, an efficient and corruption-free bureaucracy, and the rule of law. Asia's banks and finance companies had operated with implicit government guarantees which seriously distorted investment and lending decisions. Banks were ready to finance risky projects because they could reap any quick profits to be made, while the governments would cover the losses.

The key to economic recovery in all badly affected countries was the credibility of the commitment to reforms. Newly-elected Kim Dae Jung benefited from having led the opposition to the corrupt South Korean business-politics nexus for decades. His election helped to defuse the political anger resulting from the economic crisis and to channel it constructively into implementing painful reforms. The installation of a new government in Thailand helped to bring about such credibility; the persistence of the old order in Indonesia delayed the return of domestic and international confidence there. A major factor behind the collapse of local, regional and investor confidence in Indonesia was the lack of institutional mechanisms for an orderly succession of power. The Suharto regime, preoccupied with perpetuating its own hold on power and protecting the pervasive control of the economy by members of the first family, had singularly failed to develop institutions for the management of a complex modern society and economy.

By contrast, countries with more developed economic, political and social institutions suffered less severely or managed to begin the recovery more quickly. The Philippines, by operating a single six-year presidential term, had harnessed the personalism at the heart of Asian politics to a democratic structure. By limiting the term of the president, the power of this personalism is automatically limited too.

Another reason for the dramatic change from miracle to malaise may be that export-led growth had blinded economic managers to the benefits of import-led growth. Freer entry of foreign goods intensifies exogenously sourced competitive pressures on the domestic economy for efficiency and productivity gains. Rising labour productivity leads to higher wages, which in turn underpin subsequent consumption; lower operating costs (because of falling input costs and higher productivity) leads to increased international competitiveness. Ironically, therefore, the export-led growth of the Asian tigers may have forced these beneficial structural changes on those economies, like the US and Australian, which refused to retreat behind protectionist barriers (such as restrictions on imports and foreign ownership of property, banks and enterprises) as the policy instrument for coping with the Asian threat.

Were Asian values to blame for the crisis? Paul Krugman (1999) notes that the Asian economies were no more transparent, no less prone to crony capitalism in the 1 980s than in the 1 990s. Cultural explanations, if they account for the debacle of the l990s, must necessarily also account for the miracle of the 1970s-80s. Should the US or Europe falter in the future, he notes, no doubt analysts will find fault with Western values and institutions too.

Crisis (Mis) Management

The outbreak of the crisis reflected failures of policy and governance at the national level. Its continuance for a prolonged period was an indictment of regional institutions and great-power economic leadership. From Australia's perspective, APEC has two great virtues. It is the chief institutional means for open regionalism in Asia-Pacific. And it is only one of two institutional frameworks for the constructive and continuing engagement of China, Japan and the United States. Yet, created to be the chief vehicle for regional economic cooperation, APEC made no contribution at all to the solution of Asia's first economic crisis since its birth. ASEAN too was afflicted by policy paralysis when confronted by the multiple crises of 1997. When the crunch came, the institutional identity of APEC and ASEAN proved to be far too embryonic and fragile, much too dependent still on the personal preferences and policies of the leaders at the top.

In addition, however, the international response to the Asian crisis highlighted deficiencies in the architecture of global economic management as well. IMF prescriptions were contested on five fronts: for the 'moral hazard' of interfering with market forces by rescuing international creditors from the consequences of bad investment decisions; for being excessively contractionary; for the rigid application of doctrinaire remedies developed in response to a different mix of policy failures in the entirely different context of Latin America where government deficits had been the roots of the crisis; for eroding economic sovereignty; and for ignoring the social and political contexts and repercussions (Thakur, 1998). A Japanese economic policy adviser in Jakarta remarked caustically that 'IMF prescriptions are desk theories based on statistical figures' (Japan Times, 26 May 1999).

What made this even more volatile was the grave social and political impact of the economic crisis. The political legitimacy and stability of Asia's less than democratic regimes had rested on the delivery of economic growth. As this stalled, riots broke out sporadically and there was a questioning of political authority more generally. In such an explosive mix, efforts by the IMF to focus solely on economic fundamentals to the exclusion of social and political reality risked heightening popular discontent instead of softening the pain of ordinary people.

Japan's Financial Crisis

It used to be said of the former Soviet Union that it was a superpower on only one of three dimensions, namely the military; it did not merit that status on the political and economic dimensions. By the same token, Japan's rise to international prominence and influence, based on economic prowess, has also been one-dimensional. Japan's economic slump began several years before the big Asian financial crisis of 1997, but has persisted through that crisis. Japan's economy grew by 1.9% in the January / March 1999 quarter, according to figures released by the Economic Planning Agency on 10 June 1999 - but only after five consecutive quarters of contraction (Japan Times, 11 June 1999). One tragic indicator of the social costs of the prolonged recession is the tragic rise in the number of suicides among middle-aged men. Japan recorded a total of 31,734 suicides in 1998, a 35% increase from 1997. The increase among men was 40%, with a surge among middle-aged men - the common target of corporate restructuring. Suicide was the second-leading cause of death among men in the 40-60 age bracket (Japan Times, 12 June 1999).

The combination of its own economic downturn domestically, and of the failure to exercise leadership in its own region of primary interest, on the one dimension of its global influence, severely dented Japan's status as a major power in the making. Its failure to reform, liberalise and open its own economy, and its inability to make and implement tough decisions with a sense of urgency, underlined the lack of political and intellectual leadership.

The leadership vacuum in Asia was filled by the United States, not Japan. The United States and the IMF are still the most powerful influences on global economic management. Even though Japan has been the largest single contributor to the financial rescue packages for the Asian countries worst hit by the crisis, the widespread refrain across Asia in 1998 was that Japan was not doing enough to open its markets and absorb more imports from the region.

The 'Asian' growth model had its origins in Japan. It produced rapid industrialisation and export-led growth through a state-influenced system of close cooperation between government, banks and industry acting together in a nation building enterprise. Clyde Prestowitz (1998) attributes Japan's affliction, not to unique cultural traits, but to a dramatic turnaround in its identity from a nation struggling to catch up, to one that had caught up. Policies and practices were adopted after the Second World War with the goal of catching up with the United States. Because capital accumulation was to be domestic, citizens were encouraged to save through such measures as low taxation of interest earnings. The savings were then channelled through the government guided banking system for investment in targeted industries (steel, automobiles, computers). But the domestic market was not large enough to absorb the growing manufacturing capacity. Policies were therefore adopted to promote exports, while the domestic market was protected in order to utilise capacity to the fullest. The larger geopolitical circumstances were such that Washington acquiesced in an undervalued yen, non-reciprocal open markets to Japanese exports, technology transfers to Japan, and an abdication of responsibility for defence and foreign policy to the US.

While governments reigned, bureaucrats governed. The powerful Ministry of International Trade and Industry (MITI) was 'the ultimate custodian of Japanese industrial and commercial interests' (Hutton). The 'save, invest and export' model has outlived its relevance. Obsolete policies, practices and institutions remain in place well after their usefulness has expired. Strategies that worked in the era of industrial takeoff are inappropriate for a mature economy. Past strengths have become the sources of present weakness, and industrial policy has been corrupted from promoting winners to protecting losers. Tax, subsidy, labour and protection policies account for low productivity, lack of agility and adaptability, and inefficient pockets sheltering behind political clout. The costs of these are borne by the efficient export sectors as well as by domestic consumers. To escape high-cost domestic inputs, Japan's efficient firms have been driven overseas: hence the 'hollowing out' of Japanese industry.

The intersecting networks of special, almost semi-feudal relationships are based on power, not law. As such, they are subject to abuse and corruption. Most crucially, Japan saves and invests too much but consumes too little: the incentives are aimed at boosting savings and investment while constraining consumption. The economy needs to be run primarily for the benefit of consumers rather than producers. The entrenched interests, led by industry associations, cartels and politicians determined to stay in power, need to be destroyed or circumvented.

The difficulty is that the very same structural features that impede economic growth are the pillars of Japan's political system. Cartels, protectionism and high prices create and sustain inefficiencies and dampen effective consumer demand; but they serve as disguised employment and income redistribution for stagnant sectors like farming and construction. While structural reform would generate more jobs in the long term, they would lead to substantial unemployment in the short term - in a country that has no tradition of a public sector social safety net.

I would like to emphasise that these are neither inherently cultural constraints to recovery nor confined solely to Japan. Analysts, foreign as well as Japanese, should emphasise Japan's uniqueness less and open the closed cartels of the mind to liberating influences from around the world.

The winds of market integration have been blowing across Asia-Pacific even through the financial crisis, perhaps to some extent fanned by it. Meeting in Thailand in March 1999, ASEAN economic ministers agreed to an acceleration of market integration moves for the ASEAN Free Trade Area (AFTA) by 2003. The new approved measures include a deepening of tariff cuts with a view to eliminating most import charges by 2002, a dismantling of barriers to foreign investment in agriculture, manufacturing and fisheries by 2003, and a pruning of the exemption list. Nevertheless, unlike Europe, ASEAN has no ambitions for a customs union (with a common external tariff) or single currency.

In May 1999, MITI proposed the establishment of a free-trade zone or tariff pact for Northeast Asia through regional trade integration mechanisms. Noting that 90 percent of the 134 members of the World Trade Organisation (WTO) belong to regional trade pacts, and pointing to the growth of trade and investment under the umbrella of the North American Free Trade Agreement (NAFTA) and the Mercosur common market in South America, MITI drew attention to Northeast Asia's distinctiveness in not having regional trade arrangements (Japan Times, 22 May 1 999).

Upon closer examination, the impediments to Japan's recovery turn out to be political more than cultural. True, the factionalism and conservatism of the Liberal Democratic Party (LDP) hinder timely and effective action; but is America immune from the paralysing nexus between political parties and sector group interests? The tendency for politicians and bureaucrats to nurse along the existing system by gutting reform is characteristic of all large economies; the greatest stimulus to sweeping reforms in all countries tends to be an economic crisis of seismic proportions. Thailand and South Korea, not having Japan's riches, have embraced reform more urgently despite cultural inhibitions that place a premium on social cohesion.

Australia's Challenge of Cultural Relocation and Adjustment

Australia's challenge of regional engagement is how to reconcile the preparedness, capability and credibility for dealing with Asia with the need to protect and nurture its own humanist, pluralist and democratic traditions. The process of regional engagement can be confronting to many Australians' self-identity. The ebb and flow of coping with the challenge leads to bouts of agonising, excitement, anguish, disappointment, cynicism and temporising.

The fundamental relocation of Australian identity away from its historical roots to its geographical moorings may yet prove to be the most enduring foreign policy legacy of the Hawke-Keating Labor governments (1983-96). The extent of changes in Australian society are as nothing compared to the pace and magnitude of changes in Asia over the past generation. Defeated enemies have become the most important trading partners; former aid recipients are capital-surplus investors; only the Japanese and the Hollywood glitterati can now afford to stay at the Raffles Hotel in Singapore, while the rest of use make do with expensive sips of nostalgia in the form of a glass of Singapore Sling.

The effort to define Australia's identity in Asian colours may be recent. Yet Asia has always been central to the definition of Australian identity. For most of Australia's history as a European settler society, Asia as the 'other' was the point of reference for defining Australia as the 'self'. Its historical memories, cultural antecedents, and the ideas on which its society was constructed were all European. But Australia was not part of Europe, and its distinctive identity could only be interpreted with reference to the geographical dislocation from Europe on the edge of Asia.

The demographic transformation of Australian society was expressed in public policy as multiculturalism. The failure of the Labor governments to mobilise community support in favour of the 'Asianisation' of Australia led to the fear that 'Canberra' was bent on the fragmentation of a hitherto cohesive Australian society. To many Asians—I speak with some inside knowledge—it is precisely the European heritage of Australia that is most attractive: the rich texture of civil society, the impersonal workings of the law, the respect for and institutional protection of human rights, and the transparency and robustness of parliamentary politics. Australia's other attractions to the peoples of the region include a strong skills base, world-class educational and training institutions, advanced physical infrastructure, sophisticated services sector and access to modern information technology systems and networks.

The Hanson Factor

The rise of Hansonism was proof that domestic support had not kept pace with the flexible and innovative diplomacy of regional engagement. Pauline Hanson's views reflected neither government nor opposition policy. She is neither intelligent, educated nor informed. She is empty of content and bereft of vision. She has no grasp of how society is structured, where power is located, how it is organised and exercised. Her worldview of modern international capitalism is almost stupefyingly uncomplicated.

Let it be noted that Australia's present immigration policy stands favourable comparison with that of any other country in Asia. The previous Labor government was widely perceived to have lost sight of the national interest by becoming captive to special interest lobby groups. Hanson's One Nation profited from the backlash. The problem was not what Pauline Hanson said, but what John Howard did not. He was timid not robust, reactive not proactive, and cautious not visionary. The damage done lay in the reminder of the history of 'White Australia' policy and the stumble caused to Australia's effort to identity and engage with Asia-Pacific.

For perspective, nevertheless, it is worth remembering that in 1980 Hanson would have been mainstream Liberal Party, and in 1960 mainstream Labor Party. Australia has changed, mostly for the better.

Conclusion

The old world order has faded. The new world order is not yet set. The contours of Asia-Pacific are changing. Items for continuing discussion include:

• The economic recovery of Asia-Pacific;

• The future of the US role in the regional economic and security orders; The future of Taiwan;

• The future of the two Koreas;

• Nuclear proliferation in the Indian subcontinent and the Korean peninsula; Conventional arms transfers;

• Regional peacekeeping;

• The integration of Vietnam, Cambodia and Myanmar into the Southeast Asian

• mainstream;

• The nature of links between ASEAN, APEC and European countries;

• The proper balance between universal human rights and regional cultural norms; The future roles of China, Japan, the United States, Russia, India and the Central Asian states; and

• The place of Australia and New Zealand in Asia-Pacific.

The optimistic scenario for Asia-Pacific postulates continuing strengthening of cooperative security relations embedded in such regional institutions as APEC and the ARF. Enhanced interdependence through increasing intra-regional flows of people, goods and services will foster and nest a growing sense of community. The pessimistic scenario is of intensified volatility, turbulence and conflict beyond the managerial capacity of the embryonic regional institutions. The prophets of doom fear the re-emergence of old power-political rivalries, or else the rise of new security threats rooted in energy, food and water scarcity.

As we approach the new millennium, Australia's new order—based on liberal trading regimes in Asia-Pacific and the world, economic integration with Asia and a security engagement with Asia underwritten by the US—is not yet in place. Australia's security depends fundamentally on the state of relations between the major powers of Asia-Pacific rather than on its own actions. Similarly, its prosperity is as much a function of the health and interaction of the major economic players in the region and the world as of domestic policy. That is, Australia's fortunes are shaped and determined by the broader political, economic and social forces at work around Asia and the Pacific. Hence the investment of so much time, effort and money in regional engagement with Asia-Pacific.

 

 

References

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