Featuring
Mark Malloch Brown
Smartmatic
This is a propitious moment to be talking about the social dimension of U.S.-East Asia relations. The crisis brought about by the financial meltdown in the region is a moment of opportunity for redefining relationships and also one of great risk—great risk for the U.S. position in the region, but much more profound risk for the countries in the region themselves.
As a non-American who spends a lot of time trying to encourage U.S. support for multilateralism, at the World Bank and also at the United Nations and other international organizations, I watch U.S. involvement in a crisis of this kind with some alarm. After all, U.S. foreign policy in the region has gone through several phases. There was a clear national security phase, punctuated by World War II, the Korean War, and Vietnam. Subsequently there was an economic phase, with an exuberant respect and expectation for the market opportunities that the region seemed to promise U.S. exports and trade partnerships. And now this jarring financial crisis presents the possibility of a third phase of U.S. policy in the region, one that is more attuned to and engaged with the region’s social dimensions. This can be based on real foreign policy interests and the understanding that if these dimensions are left untended, the prospects for economic returns from market relations are clearly endangered. The United States sees its fastest-growing overseas market jeopardized by this current crisis. And yet, the answers do not lie in the abstract world of economics; they lie in social engagement in the region.
One of the things that this crisis has revealed is the complete shortsightedness of financial institutions like the World Bank and our inability to predict crises. None of us foresaw the contagion of this crisis, how it would spread across the region. But having said that allows me then to make a criticism of the region itself. This is a crisis of government as much as a crisis of finance in the region, and what it has exposed are the closed political systems in these countries. Let me say very clearly that the more open the political system, the better the countries have resisted what has happened. The Philippines, usually the sick man of the region, did a much better job of keeping separate the links between business and politics. Its central bank did much better at regulating financial flows, much better at regulating the banks, and it paid off. Yes, the country has been affected by the crisis, but the political events that began in 1986 produced a financial return in terms of the regulatory ability to resist the crisis. The Philippines is a much poorer country than its neighbors, so saying that it resisted the financial crisis is not intended to diminish the real impact the crisis has had on the poor. But there was not the same stock market or currency collapse that some of its neighbors experienced.
Similarly, the poor old democracies of Latin America, long dismissed as not having the authoritarian discipline of their East Asian competitors, did a lot better, with their ragged democracies reacting in a disciplined way to a crisis that could easily have sucked them in. When the financial crisis struck in late 1997, Brazilians took the painful economic steps necessary to resist it, cutting government spending and raising real interest rates, the kinds of decisions that require independent policymakers who are accountable to a democratic electorate. In the absence of independent and accountable decision makers, all of the technocrats trained at the University of Chicago or at Berkeley cannot save you, because your economy will be plagued by dangerous, incestuous relationships between business and politics. Under those conditions, when the country faces this type of financial crisis it will be unable to manage it because the forces protecting big business interests will override the broader needs of national economic policy making. Clearly, one lesson of this crisis is to promote open governments and the accountability of institutions.
A second lesson of this crisis is the need to promote labor rights. There is no doubt that one impact of the crisis has been to throw people who have only recently moved from a rural into an urban economy back on their own, and their families’, devices for survival. Having people lose their jobs is going to be a shot in the arm for labor organizing in the region, and I think that will prove to be an advantage for the long-term health of the region despite the evident short-term distress.
Third, the crisis should be a shot in the arm for civil society. We at the World Bank are finding as we lay out very large social lending programs that the quickest, most effective way of targeting poverty—of putting mechanisms in place to measure poverty and find out where and how it has struck deepest, and then of constructing delivery systems to get self-help-based solutions in place—is to work, parallel to the official government structures, with civil society. This is particularly true in Thailand and the Philippines, where there are active local communities and total government support for that approach. There is significantly less support for it in Malaysia and Indonesia. South Korea is a somewhat different situation. The South Korean government supports a civil society approach, but the government structure is much more sophisticated and capable, and is dealing with a different generation of problems that have to do with the extension of social welfare benefits to employees of small companies, rather than simple job creation or the protection of basic services. And so, as behooves a country with a considerably higher per capita income and level of development, South Korea faces a different challenge.
The final lesson cum cause of the crisis is in the area of free media. If you want transparency and accountability of policy making, there must be a robust and critical media. At a press conference during the World Bank’s annual meeting in Hong Kong, George Soros challenged the Malaysian press to report back to the Malaysian public his claim that, had there been a free media in Malaysia, Prime Minister Mahathir’s views concerning Soros’s role in the financial crisis would have been challenged and refined long before he went international with them. This became an interesting example of the development of the free media in the region. The traditional media, the newspapers and Kuala Lumpur-based media, did not as far as I can tell report any of these allegations, despite George Soros’s challenge that this would be a test of whether they were the free media they claimed to be. On the other hand, in this glorious global world we live in, the new satellite and cable broadcasters operating throughout the region carried this into every middle-class home in Kuala Lumpur, leading every news hour for 36 hours with the Soros challenge.
The United States needs to focus on these issues. This is really a matter of these countries’ civil societies seizing the political opportunity created by the crisis, and it is clearly not my part, representing an international economic institution, to be advocating anything revolutionary here. But I would like to see East Asians seize the opportunity for change and be supported by an imaginative, innovative U.S. foreign policy, as they are being supported as much as possible by the Bank’s efforts to invest in the social dimensions of recovery from this crisis. It is striking that there is widespread, potentially activist U.S. public support for international engagement. The trouble is that it is not for the forms of engagement that Washington defines as being foreign policy concerns. The old foreign policy of guns, and even the newer foreign policy of markets, does not turn on American public opinion. The foreign policy that turns on American public opinion is the one that is scorned in the opinion pages of the New York Times, scorned in the U.S. Congress. It is the foreign policy of Copenhagen and Cairo, and even of Kyoto, which the traditional opinion makers characterize as large, expensive conferences, but which ordinary Americans perceive as offering more real engagement of Americans with other people’s civil societies.
We have been unable to articulate convincingly to the American public that multilateral organizations are efficient and effective deliverers of development assistance. But while it has proved very hard to make the case for a traditional multilateral set of partners for the United States, be it the World Bank or the United Nations, it is very easy to make the case for a broader partnership between civil societies across the world and an American constituency here. To the extent that we at the Bank position ourselves to facilitate that public-to-public partnership, we see a source of support and constituency building for the future.
