Democracy can wait

while Asia’s economies boom

In September 1997, at the height of the Asian crisis, Robert Rubin visited China’s Great Wall. It was a brief respite from the tense talks in which the former US 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—isn’t looking so good. At the time, US President Bill
Clinton felt Rubin, a Goldman Sachs Group Inc. alumnus, would have more success than his State Department in making the case for more openness. The pitch: Democracy leads to prosperity. 

Asia’s resilience

Given China’s 11-percent growth and rising global stature, it’s doubtful many officials in Beijing regret ignoring the US’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 Federal Reserve Bank of New York president Tim Geithner—say the crisis 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’s well-known that China, Russia and Venezuela see things differently. Less recognized is how Asia isn’t embracing political openness the way officials in Washington expected in the late 1990s. 

Disappointment

Thailand is one example. In September 2006, popularly elected Prime Minister Thaksin Shinawatra was removed by a coup. Prior to 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, haven’t changed much since the late 1990s. Hong Kong residents still don’t have universal suffrage. 

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 Arroyo is the elected president, democracy hasn’t been the panacea that was supposed to reduce poverty. The country was never one of the Asian tigers, and corruption remains rampant.  

‘Illiberal democracy’

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 doesn’t ensure democracy.

The other reason democracy isn’t thriving in many parts of Asia is disillusionment with the process, coupled with the example offered by China. Instead of US-style government, Asia may be moving toward “illiberal democracy.”

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.” 

More time needed

The US’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 doesn’t quickly translate into riches, populations will question its utility.

Meeting with Indian businesspeople, 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.” It’s not that Indians want to live in a China-like system that censors the Internet. It’s more a recognition that democracy can have its limits when it comes to economic policymaking.

Rumblings in Asia may increasingly shift toward economic growth first, full-blown democracy second. It doesn’t mean openness and capitalism are incompatible in the long run. It’s just that Asia needs more convincing in the short run.  

William Pesek is a Bloomberg News columnist. The opinions expressed are his own.

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In September 1997, at the height of the Asian crisis, Robert Rubin visited China’s Great Wall. It was a brief respite from the tense talks in which the former US Treasury secretary was embroiled in Beijing.