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.


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