A Threat Is Removed, but Future’s Uncertain

No one can say exactly what the new economic order will look like in 15 years but, like it or not, a brave new world it will most certainly be. And almost no one, at least in Southeast Asia, could imagine history moving happily forward if China were to be left behind, in a position to weigh everyone down. So for this region, which has only recently begun to put itself back together after the Asian financial crisis, the news this week out of Beijing--that U.S. objections to China’s admission to the World Trade Organization have been removed--means that the region will not have to endure seeing a quarter of the world’s population, living on its doorstep, left behind as the new economic order arrives.

That a WTO deal should have been reached months, indeed years, ago, instead of in this cardiac-arrest last-minute spasm of negotiation, is neither here nor there for Southeast Asians. They are resigned to the byzantine ways of a Chinese political system that takes forever to make a single decision--and to our American one that makes too many decisions too quickly, then changes many of them the next day.

For Southeast Asians, the notion that the world is now one large community and, like it or not, they are unavoidably part of it, was brought home in July 1997. That was their world economic order epiphany, when the value of the Thai currency evaporated like puddles of summer rain and people all across the region started defaulting on loans, losing jobs, facing unexpected horror.

The main certainty in the world today is that everything happens fast and doesn’t slow down enough for us to understand it fully. Two years ago, few Asians--or Americans--believed that Singapore or Japan or Korea or anyone in this region would be looking at positive economic growth before the millennium. Now a recovery is in full swing and China has a WTO deal.

But where and when will the next economic convulsion take place? And what will be the cause? I asked that of Lawrence H. Summers, the Harvard professor who replaced Robert Rubin not long ago as U.S. Treasury secretary. Summers, a strong advocate of the WTO deal for China who recently visited Beijing to that end, believes that the Asian recovery came relatively quickly because both international institutions and national governments returned to economic basics.

“Asia’s further recovery depends on the choices that Asian economies make, including a continuing commitment to strong policy,” Summers said. “The recent events in Asia weren’t the first, second, third or last test of the international system. What we’ve shown is the value of the new world economy, but also the importance of old virtues, including transparency, accountability for policy performance, sound regulation of banks, correct macroeconomic fundamentals and the capacity for the provision of emergency liquidity to troubled economies.”

This, then, is the emerging view of the American establishment about what happened here these past two years: That the Asian financial crisis was predominantly Asia’s fault and that the havoc was not caused in any large way by raging short-term capital flows.

Summers’ perspective is echoed in the just-published report of a Council on Foreign Relations’ task force, “The Future of the International Financial Architecture.” This East Coast insider group urges national economies to adopt common-sense policies (stay off the addictive sauce of excessive short-term capital and get your domestic economic house in order) while advising everyone to forswear simplistic explanations. “Hedge funds are not the villains they are often made out to be,” says the report, just published in Foreign Affairs.

American certainty on this and other issues becomes all the more consequential as China integrates into the world economy, inevitably changing the world’s financial equilibrium. Can all phenomena be readily explained by the standard catechism of capitalism? A series of pointed dissents from the Council on Foreign Relations majority view illustrate the uncertainty. Laura D’Andrea Tyson, former chair of President Clinton’s Council of Economic Advisors and currently dean of the UC Berkeley Haas School of Business, remains greatly worried about Western speculative funds. Former Federal Reserve Board Chairman Paul Volcker calls for nothing less than an overhaul of the entire world economic system. Carla Hills, who was George Bush’s trade negotiator, proposes a global summit on economic reform. All these ideas seem more plausible and indeed more urgent, not less, now that China’s basic decision to join the world seems less reversible than ever.

Nothing will be the same after this. For the United States, complacency and overconfidence in an age of technology-driven change would seem like a prescription for serious miscalculation.