Adam Smith, Eastern Philosophy, and the Asian Economic Crisis
An Essay by Alan Webb, a professor of economics living in the Far East
Recent events in Malaysia have re-enforced my convictions that the
benefits of a liberal economic order are closely linked to an open
democratic system where the power of the government is checked by a strong legal system, free speech, a free press, and an open democratic election process. I also believe that these are universal truths. They are perhaps best articulated in the liberal economic philosophy starting with Adam Smith, but the fundamental idea is that the individual choice with a minimum
of government "control" is the best way to maximize the welfare of the
nation. This idea, I believe, can be found in the intellectual tradition of
many cultures.
Malaysia's Prime Minister, Mohammed Mahathir, and others in the region talk
about Asian values as they criticise the "West" for its emphasis on human
rights and free markets. Asian values are frequently assumed to mean hard
work, family, respect for authority and, implicitly, acceptance of
government leadership in charting the nation's development. These are
commendable values but without the rule of law, strong property rights and
guaranteed rights of a free press, free speech, open democratic elections,
the government will become corrupt and, left unchecked over a number of
years, will lead to social and economic decay. The economic crisis has
exposed that decay throughout the region--from Japan to Indonesia. Citizens
and governments throughout the region are looking for solutions to the crisis.
Prime Minister Mahathir, in the past month, has decided that the way out is
to impose capital controls, sack and arrest his Deputy Prime Minister, who favored IMF-type policies, and essentially imposed martial law. With an
economy based on trade and massive foreign investment, this shift in policy
represents a repudiation of the country's path to economic development. Now when the nation most needs a public discussion of the policy alternatives facing the country, there is none. None is permitted.
Other countries in the region--Thailand, Korea and finally (maybe)
Japan--have begun the massive clean-up of their financial systems. These
countries at least seem to be engaged in a public debate on how best to
correct the weaknesses in their economic and government institutions. This
public debate, while it may not guarantee the best choice, will at least
make it clear to the public what the choices are and, when the final choice
is made, why sacrifices are necessary. Public consensus achieved through
public debate will at least help assure success of the policy choices made.
This is a "teachable moment" in many of these societies. The value of
having an Asian philosopher/religious leader is probably no more valuable
than having a statement from Ghandi, the Prophet Mohammed or any of the past
philosophers or religious or intellectual leaders who have articulated
concepts similar to the liberal economic tradition of Adam Smith. These are
universal ideals with roots in many societies but which Adam Smith developed
into a coherent paradigm of human behavior. Recognizing these roots gives
more power to the ideas and makes them more acceptable to those in Asia and
elsewhere in the world, as they seek to find better ways to organize their
economic, legal and political institutions.