East Asia and the Global Crisis

Shaun Breslin

• Publisher: Routledge
• Year: 2013
• eBook ISBN: 9781135705510
• Topic: Social Sciences
• Subtopic: Ethnic Studies
• Index: Social Sciences

This book traces the impact of the global financial crisis on East Asia, and the way that key regional states responded to the crisis. It considers the extent to which the region is decoupling from the global economy (or the West), the impact of crises on the definition of "region", and the effectiveness and functioning of regional institutions and governance mechanisms (including environmental governance). A key focus of the book is the increasing legitimacy of statist alternatives to (neo)liberal development strategies and modes of governance – or perhaps more correctly, the extent to which the legitimacy of "western" norms and practices have been delegitimized by the crisis.

This book was originally published as a special issue of Contemporary Politics

East Asia and the global/transatlantic/Western crisis

Shaun Breslin*

Centre for the Study of Globalisation and Regionalisation, University of Warwick, Coventry, UK

This paper introduces the special collection on East Asia and the global crisis. After justifying why a focus on East Asia is appropriate, it draws out the main themes that run through the individual contributions. These are the extent to which the region is decoupling from the global economy (or the West), the increasing legitimacy of statist alternatives to neoliberal development strategies, and the impact of crises on the definition of ‘region’ and the functioning of regional institutions and governance mechanisms.

Introduction

Most crises are known by their origin, from the Mexican peso crisis of 1994/5 to the Asian crisis of 1997/8. Given there is no doubt who caused our world’s latest troubles, it should adopt its logical name: the Western financial crisis. This reluctance to call a spade a spade reflects an inability to reckon with changes the US and Europe have to make to avoid a repeat. (Mahbubani 2011)

Those who are familiar with the writings of Kishore Mahbubani will not be surprised that he has located the source (and blame) of the ongoing financial crisis clearly in the West. But he is not alone. Indeed, British journalist and historian Max Hastings (2008) referred to the then unfolding crisis as a ‘Western’ one in as early as September 2008. Of course, this was before the fallout of what might then have seemed to be an Anglo-American problem began to spread ever wider, and gain a ‘global’ descriptor and a new acronym – GFC (global financial crisis). It was also before some analysts began to conclude that the real cause lay in systemic global imbalances between deficit and surplus economies; the manifestation of the problem might have been in the West, but the fundamental causes were global (Dunaway 2009). Nevertheless, the understanding that the crisis was made in the West, has had the biggest impact in the West, and fundamentally questions the ‘Western’ way of doing things has retained considerable purchase; as Terada and Ong call it in this special issue, it is not so much a global crisis as a ‘transatlantic financial crisis’ with global implications.

Why East Asia?

Of course, these global implications spread much further than East Asia. ‘Sub-Saharan Africa has been strongly affected’ (Arieff et al. 2010, p. 1), ‘Latin America has become a major and, in a sense, unexpected victim’ (Ocampo 2009, p. 703) and although higher oil prices have offset some of the impact, ‘the global financial crisis has not spared the Middle East and North Africa region’ (IMF 2009). There are good grounds for having a special issue of a journal on all of these regions, either individually or in comparison. But if reasons are needed for justifying a special issue on East Asia, then perhaps five can be found.¹

The first is simply to trace what the impact has actually been to date. Experience tells us that the true and long-term implications will not become clear for some time yet, but we can at least come to some preliminary assessments of how the ripples of this transatlantic crisis were felt in East Asia, and the short-term efficacy of East Asian responses. Here, the primary focus is on the economic impact, and the measures taken in East Asia to stimulate growth and/or insulate the region from further shocks and future crises; issues that are covered to varying degrees in all of the papers in this special issue. But there is more to the consequences of crisis that the obvious economic dimension, as we see in Elliott’s contribution here which focuses on the indirect consequences for the environment and environmental politics in the region. In this first justification, there is nothing that sees East Asia as any different from any other part of the non-Western world – it is a mapping and stock-taking exercise in the same way that others might consider the impact of the crisis elsewhere. But there is something that perhaps marks Asia as a special case in the second and third justifications.

Second, then, in the years before the crisis, the idea that Asia was ‘decoupling’ from the global economy gained increasing attention. The broad argument here was that the ‘regional factor’ was becoming increasingly more important in ‘Emerging Asia’ (IMF 2007) as trading with each other became increasingly important vis-à-vis trading with the USA and the West. This idea was championed with almost missionary zeal in some quarters – including by some who had commercial interests in encouraging continued investment in East Asia. As such, mapping the impact of the crisis allows us to test some of the assumptions of the decoupling hypothesis, and the extent to which regional growth was (and still is) globally ‘dependent’.

Third, with the West apparently in decline, the hope is that East Asian (and particularly Chinese) consumers will take up at least some of the slack by buying more. And while the speed of the recovery in the region has been very impressive, the fact that domestic household consumption in the region remains relatively low is taken as a key threat to global economic recovery (Lucas 2011). Indeed, for those who see the root cause of the crisis in global imbalances (Dunaway 2009), the lack of consumption and the propensity to save in East Asia is seen as being one cause of the structural global imbalances that led to the crisis in the first place. The ‘managed exchange rate policies of some EAEs’ (East Asian Economies) has also been seen as generating imbalances (Astley et al. 2009, p. 180), with China’s exchange rate policy coming under particularly intense scrutiny.² So either through optimism or pessimism, East Asia seems to have been designated a particularly important role in either causing or resolving global imbalances (or both) and as a potential driver of or obstacle to (or both) global recovery.

Building from this, the fourth reason for focussing on East Asia is the widespread understanding that the ongoing shift in global power from West to East has been accelerated by the crisis and ‘the contours of a new international order are beginning to emerge’ (Beeson 2009, p. 730). Not surprisingly, there are differences of opinion over whether this shift of power is a good thing or not. And at times there seems to be a potential contradiction in perceptions of East Asia’s post-crisis global role. On the one hand, the hope that East Asia can be the salvation, and on the other, the concern that the resulting power transition will provide a fundamental challenge to the existing (liberal) global order.

Which brings us to the fifth and final reason why East Asia seems to be a particularly important case study in considering the consequences of the ‘West’s’ crisis. To say that East Asia has been a ‘battleground’ where dominant Western ideas have come into conflict with alternatives and/or challenges is probably pushing things too far; but not that far. Since China was brought into the Western Westphalian world through military force in the Opium Wars, norms and structures of economic interactions and the governance of international relations in East Asia have been largely dictated by extra-regional actors and interests. Of course, there have been times when non-Western and/or Asian voices and Asian ways of doing things have come to dominate, but by and large this is a world order not primarily of East Asia’s making.

Conversely, East Asia has been the supposed source of challenges to European/Western preeminence (and perhaps even civilisation) since the nineteenth century identification of a ‘yellow peril’ to the occident. More recently, and more pertinent for this special issue, East Asia has also been repeatedly identified as the source of new economic ‘models’ that, by not accepting the existing rules of the game, either disadvantage the West, or threaten the dominance of the liberal economic order; or more often, both. The early focus on ‘Japan as Number One’ (Vogel 1979) concentrated on the way that Japanese industrial policy deliberately ignored the diktats of free market Western capitalism (Dore 1986) to create a model of capitalist state developmentalism ‘for all the other countries of East Asia, including China’ (Johnson 1999, p. 33). More recently, this understanding has been echoed in the focus on a Chinese ‘model’ or the ‘Beijing Consensus’ (Ramo 2004), which not only provides a potential alternative to the (neo)liberal economic order, but through China’s lack of liberalising conditionalities when it engages developing states:

could set scores of developing nations away from the path of liberal democracy, creating a community of countries that reject Western views of human rights and accepted standards of national governance. (Barma and Ratner 2006, p. 57)

In between the decline of the idea of a Japanese threat and the rise of the idea of a China challenge, attention turned to the developmental successes generated by what Amsden (2001, p. 8) called ‘an unorthodox, original economic model’ whereby states provided subsidies to industries which reciprocated by accepting ‘monitorable performance standards that were redistributive in nature and results-oriented’. Up until 1996, the understanding that there had been an ‘East Asian miracle’ that others could learn from gained increasing credence (Stiglitz 1996). But in 1997, all this changed. On one level, the Asian financial crisis undermined confidence in the efficacy of this Asian alternative; what had once looked like innovative industrial policies and state-industry relations was now denounced as ‘crony capitalism’ by its critics. On another level, the solutions proposed by the international financial institutions were perceived in large parts of East Asia as representing the interests of the major global powers, and an attempt to force the region to adopt the hegemonic (neo)liberal Western mode of capitalism. In the words of Johnson (1998), the crisis was the manifestation of a ‘clash of capitalisms’.

So the Asian financial crisis, or more correctly, the response to the crisis, generated considerable resentment in the region, and helps explain why people like Mahbubani are keen to point out that the current crisis is firmly ‘owned’ by the West. As Stubbs notes in his paper, there was a feeling then that the USA was using global institutions to ‘unfairly’ attack or punish East Asia, and there is a sense now that this is ‘payback time’ and that the West is now suffering because it did not learn any lessons for itself from what happened in East Asia (and elsewhere) in 1997. The clash of capitalisms has been reignited and has entered a new phase with non-Western versions re-legitimised and appearing to be increasingly powerful.

Contributions and findings

In discussing the implications of the crisis on the region, and how the region will impact the post-crisis global economy, most of the attention has (for very good reasons) honed in on China. And this importance is reflected in this collection of papers by the inclusion of a paper that considers the specifics of the Chinese case (by Breslin). The Japanese case is also included as a single study (by Terada and Ong) – partly because of Japan’s different level of development and position in the global political economy vis-à-vis other states, but also partly because the way in which Japan responds to China (and China responds to this response) seems to be a key determinant of wider regional relations and the role of the region in the global order. The rest of the papers, however, consider the region as a whole rather than focussing on specific countries, considering the relative robustness and resilience of regional financial markets (Sinclair), the efficacy and evolution of regional cooperative arrangements (Emmers and Ravenhill) and the impact of crises on the environment (Elliott). An underlying theme in all of these papers is the role and significance of the state and varieties of state-economy relations; issues that are brought together and dealt with in a consideration of the enduring features of state developmentalism (Stubbs).

Each paper has its own individual focus and issue-specific conclusions – and it is not the intention to repeat them here. Rather, in what remains of this introduction, the task is to pull together some overall conclusions that emerge from these six papers combined. In doing so, though, it is important to start with two key caveats. First, the following comments are based on my interpretations of the contributions as a whole, and individual contributors do not necessarily share all of these collective conclusions. Second, we have to accept what we might call the ‘Zhou Enlai principle’, based on the oft repeated story that Zhou declined to make a definitive comment on the importance and impact of the French Revolution because it was still too soon to say. The way in which many regional states responded to the crisis, for example, could only be short-term phenomena. What will happen as stimulus packages fade out and/or create inflationary ‘bubbles’ remains to be seen, and the long-term consequences simply will not become clear for a number of years.

So with this in mind, what can we say with any certainty? A common theme running through all of the papers is the importance of historical contextualisation. Without looking backwards and thinking about trends in policy and politics before the onset of the crisis, it is not easy to understand why states and individuals acted in the way that they did. In particular, be it in terms of having a simple reference point for comparing the differential impact of crises, the context of resentment and clashing capitalisms, or thinking about the lessons learnt about providing protection from the vagaries of global capital(ism), studying what happened in and after the Asian regional financial crisis in 1997 is an important starting point for trying to understand what happened in and after 2008.

Decoupling and contagion

Another common theme is the understanding that while East Asia was clearly affected by the crisis, the region proved to be remarkably resilient – in part at least because regional elites had the above-mentioned experience of 1997 to guide them. As Stubbs notes, despite the liberalising preferences of the IMF in the post-crisis recovery, the role of state and the relative lack of financial liberalisation appeared to be a key reason why China in particular did not suffer too badly in 1997 and 1998. In particular, as countries with strong financial reserves had fared well during the Asian crisis, building up reserves to provide a bulwark against any future shocks became a common approach across the region, and meant that regional governments were well placed to respond when economic challenges emerged in 2008. Moreover, as Sinclair notes in his contribution, the ‘Western’ model of bond markets emerging ‘spontaneously through market innovation’ was not replicated in East Asia, where the state was always a much stronger player in establishing the markets in the first place, and providing financial disintermediation.

So crucially, while regional states faced real economic problems overwhelmingly related to the impact on trade and export-related production, they did not face the financial chaos that hit the West. Here we have to keep the Zhou Enlai principle in mind and recognise that financial problems may emerge as the medium- and long-term implications of the stimulus packages deployed in many regional states become clear. Nevertheless, we can suggest at this stage that regional states largely responded with impressive speed and foresight with a range of policy responses to offset negative impacts to ensure that growth was maintained despite the global turndown. Returning to the nomenclature of the crisis discussed at the beginning of this introduction, we might also suggest tha...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• 1. East Asia and the global/transatlantic/Western crisis
• 2. Stay on target! Implications of the global financial crisis for Asian capital markets
• 3. The Asian and global financial crises: consequences for East Asian regionalism
• 4. The East Asian developmental state and the Great Recession: evolving contesting coalitions
• 5. Shades of green in East Asia: the impact of financial crises on the environment
• 6. China and the crisis: global power, domestic caution and local initiative
• 7. Japan and management of the transatlantic crisis: international responses and domestic struggles
• Index