By Phillip Lawrence, University of Sydney
This Asian century will be important for a lot of reasons, and fascinating for many more. Capitalism for better or worse has migrated from Western economies to many parts of post colonial and communist Asia.
That a number of Asian countries have been successful new capitalists is evident in superior economic growth rates. Despite global concerns that China’s growth is slowing, it still provides more than 30% of total world growth.
One particularly interesting aspect of a new Asian century over only this last decade is how different varieties of capitalism are emerging throughout the region.
A common theme is how each Asian form of capitalism differs from a Western norm. Boom-and-bust cycles that have characterised Western capitalism have been used to describe regular economic failures.
Will the Asian varieties of capitalism also experience similar ruinous episodes that have been regularly played out in a variety of Western capitalism?
Forms of capitalism such as Liberal Market Economies, (LME) or Controlled Market Economies, (CME) seen in Europe and North America have maintained their differences, despite predictions each variety would gradually meld into one. Therefore it is likely a unique Asian capitalism will also remain typical for some time.
There are some noteworthy features of a new brood of national economies in South East Asia such as Indonesia and China compared to the West.
Most major business organisations in older western economies are owned by armies of faceless stockholders or detached investment vehicles who never share in running and knowledge building of firms they partially own. Shareholders’ only rights are to future earnings per share, not how earnings occur.
CEOs and managers of firms in US business organisations in particular can earn obscene volumes of cash in companies that have on occasions failed by any measure. It seems any relationship between business success, firm failure and management income has been decoupled in the USA and now some parts of Europe.Asian economic enterprises are in many cases owned by multi-generation family groups or owned wholly or partly by government. Westerngovernments, particularly the US, have complained Chinese authorities are preventing their Yuan to freely float to a level relative to other global currencies. Chinese leadership avoids a need for short term election cycle vote winning promises.
This means they are able to engage in longer-term strategies such as the Chinese government’s successful reforestation and afforestation http://www.sciencemag.org/content/318/5856/1556.short and backward efficiency programs in manufacturing industries http://www.chinamining.org/News/2012-01-17/1326785174d53533.html. Regularly the Chinese Government announce a demand for various industries to close old polluting factories so that the shortage of capacity can be filled with new more efficient technologies. This has particularly occurred in the pulp and paper industry, steel production and energy and other energy and pollution intense sectors.
Also the Indonesian variety of capitalism seems to be unique. The Indonesian economy is an economy significant to Australia as recently highlighted in the Asian Century White Paper. In Indonesia, a core group of 15 families control a little more than 60% of that country’s share trading and almost entirely own more than 80% of Indonesian firms.
These internationally significant economies are so different from Western forms that it is hard to conceptualise how they would partially fail as regularly experienced in Western varieties of capitalism.
That is not to suggest they will not partially fail from time to time. Dominant characteristics of some major Asian economies mark a significant departure from the hitherto capitalist norm.
The GFC marked a significant event in world economic history for a number of reasons. Firstly, it has been an extremely long recovery period, which is far from over after a deep global downturn. Such an event has only been eclipsed in 1929, Wall Street stock crash. But it has been far from the only global or near global downturn that has come out of Western capitalism.
Will a similar regularity of economic events plague Asia with its particular varieties of capitalism? What will an Asian economic downturn, (if one does occur) look like given differences in business organisations in that region?
Except for post-war rebuilt economies of Japan and South Korea, (long term problems that have faced Japan and South Korea have remained mostly internal) the most notable financial crisis for a 100 years or so that can be associated with Asia was the 1997 Asian financial crisis.
That crisis was confined to a number of Asian economies, but in reality its root cause was a rapid withdrawal of large Western cash investments from a number of Asian nations. It was due to opportunistic Western investment houses playing out high risk short term investment strategies in new and untested markets.
Conceivably an inter-generational aspect of Asian family economic organisations may provide a longer term view in any investment strategy. While the presence of greed remains a constant, perhaps leaders of Asian family organisations witnessing participation of their children and grandchildren in their firm might provide a tempered pursuit of return on investments.
Maybe also large scale use of family finances may provide many Asian firms with greater due-diligence when and if embarking into risky new business areas.
Asian firms are often criticised for their lack of innovation and a preference in copying existing technologies and services. With innovation comes increased risk. Extremely risk adverse Asian family firms may provide economic stability in a new Asian economic system, where risk and high rewards and magnificent failures prevail in the West.
The varieties of capitalism in some newly industrialising economies in Asia are yet to be fully defined, but without doubt they differ from the norm. Lucky for us a new Asian financial crash might be some time off yet. For now we’ll just have to do with ones from the West.
Phillip Lawrence consults to a number of Indonesian firms. Currently a PhD scholar at Sydney University, Department of Government and International Relations. PhD topic: Barriers and Incentives to the Ecological Modernization of the Indonesian Economy.
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