In September 1997, at the height of the Asian financial crisis,
Robert Rubin visited China’s Great Wall. It was a brief respite from
the tense talks in which the former U.S. Treasury secretary was
embroiled in Beijing.
As we walked along, he paused for a moment, pulled at one of the
wall’s stones and deadpanned: “Yep, pretty solid. Hopefully we can say
the same about the yuan.”
The reference was to the first of two missions back in the Chinese
capital: encouraging China not to devalue its currency. The concern was
that China would join Thailand in weakening its exchange rate. Even
though Indonesia and South Korea did it too, investors predicted
disaster if China were to do so.
July 2 marks the 10th anniversary of the start of the Asian crisis,
and China’s currency is still effectively pegged. China formally
severed the yuan’s link to the dollar in 2005, though it has amassed
more than $1 trillion of reserves to hold the exchange rate in place.
Even so, getting China to keep the yuan steady was a big coup for Rubin
at the time.
Ten years on, Rubin’s other mission in Beijing that week – nudging
China toward democracy – is not looking so good. At the time, President
Bill Clinton felt that Rubin, a Goldman Sachs Group alumnus, would have
more success than his State Department in making the case for more
openness. The pitch: Democracy leads to prosperity.
Given China’s 11 percent growth and rising global stature, it’s
doubtful that many officials in Beijing regret ignoring the U.S.
democracy-is-best message. What may be surprising, though, is how
China’s un-American views on democracy are gaining favor in Asia.
The region is certainly back. While much work remains to be done to
improve economies and spread the benefits of growth, Asia is again a
hot investment destination. Many – including the president of the
Federal Reserve Bank of New York, Tim Geithner – say the crisis has
made Asia more resilient.
“They are much less likely to face the type of crisis, the acute,
self-reinforcing panic produced by the balance sheet problems of that
era,” Geithner, who visited China’s Great Wall with Rubin 10 years ago
as a Treasury official, said of the region’s economies on June 20.
One of President George W. Bush’s most consistent philosophies is
that democracy is a necessary ingredient to economic success. It is
well known that China, Russia and Venezuela see things differently.
Less recognized is how Asia is not embracing political openness the way
officials in Washington expected in the late 1990s.
Thailand is one example. In September 2006, a popularly elected
prime minister, Thaksin Shinawatra, was removed by a coup. Before that,
Thailand’s post-crisis recovery made it an investment darling.
Since September, three years of economic gains and wealth creation
have been squandered. Singapore’s politics, meanwhile, have not changed
much since the late 1990s. Hong Kong residents still do not have
Asia does have its democracy success stories. India is one example,
of course. Japan, South Korea, Malaysia, Indonesia and the Philippines
are others. Taiwan gets little attention because the world doesn’t want
to lock horns with China over the issue.
Yet there are a couple of reasons to be disappointed about the state
of democracy in Asia. One is weak government institutions: They hold
democracies together more than national leaders do.
The Philippines is a case in point. While Gloria Macapagal Arroyo is
the elected president, democracy has not been the panacea that was
supposed to reduce poverty. The country was never one of the Asian
tigers, and corruption remains rampant.
Across Asia, strong ministries, independent courts, a free press,
credible central banks and outside watchdog agencies would not only
enhance democracy, but also the forces of capitalism.
In Thailand, Thaksin governed according to his own playbook and
circumvented the rule of law. Having a constitution and elections does
not ensure democracy.
The other reason democracy is not thriving in many parts of Asia is
disillusionment with the process, coupled with the example offered by
China. Instead of U.S.-style government, Asia may be moving toward
The phrase was made popular by Fareed Zakaria in a Foreign Affairs
article in 1997, the same year the Asian crisis began. It refers to a
model in which leaders are elected to some extent, but civil liberties
and press freedom are kept under tight watch in the name of stability.
Some call such leaders “elected autocrats.”
The U.S. founders pursued democracy in sync with capitalism. In the
age of globalization, though, capitalism often widens the gap between
rich and poor, and even undermines the push toward democracy. If
political freedom does not quickly translate into riches, populations
will question its utility.
Meeting with Indian business people, one often hears some variation
of “it’s so hard for us to get things done, but China’s top-down system
can do what it wants, when it wants.”
Rumblings in Asia may increasingly shift toward economic growth
first, full-blown democracy second. It does not mean that openness and
capitalism are incompatible in the long run.
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