LESSONS FROM THE ASIAN FINANCIAL CRISIS

The Asian financial crisis may have finally put to rest the myth that the region’s success has come about as a result of a unique system of capitalism rooted in Asian values—a system immune to the depres-sions and other troubles that economies in the West have to endure. Now, however, this claim is being replaced with a skepticism that is equally wrongheaded: a perception that the so-called Asian miracle had no substance, that it was a house of cards destined to collapse under the weight of cronyism and corruption. The fact remains that real per capita incomes in the Asian economies have grown at an average rate of 4 to 6 percent per annum since the 1960s. This is not some national income accounting anomaly but, rather, a reflection of the high and rising rates of consumption that anyone who has lived or traveled in the region can easily observe. It is also reflected in the vast improvements in health, life expectancy, and education of the Asian people. Even if the present crisis stopped all economic growth for the next five years, these economies would have performed well above the world average for some three decades. Asia’s success has not been built on the discovery of a new form of capitalism, advocated by Singapore’s Lee Kuan Yew and Malaysia’s Mahathir Mohamad and promoted quietly by Japan’s faceless bureau-crats. Rather, its success has been due to a tried and true formula, the vital ingredients of which include a hard-working, well-educated and trained labor force, and a vigorous entrepreneurial class that invests in plants and equipment. Asian nations spend more on human capital than do the vast majority of nations with comparable levels of per capita income and appreciate the importance of the market econ-omy. They have promoted economic freedom by lowering taxes an