East Asia's Future

01 September 2002

Published in Asia Europe Crosspoints
TNI, September 2002

As Asia is dragged down by the global economic downturn, regional cooperation or regional integration is an idea that is again on the agenda. Tighter links between Japan and Southeast Asia was the theme sounded by Tokyo earlier this year. There was, however, something desperate about the call. A Vietnamese official commented that it seemed to be a hastily put together affair that was all show and little substance whose main purpose was unstated, and that this was to counter the proposal floated by China last October to form a free trade zone with Asean.

The proposal for accelerated strategic economic cooperation is one that should have been floated at least a decade ago, when Japan, South Korea, and Asean were enjoying a degree of growth and prosperity. Now the Japanese economy and the Asean economies are in deep crisis, providing the most difficult context for negotiating closer economic relationships.

A decade has been wasted that could have been devoted to arriving at some form of economic arrangement that would have carried forward and transformed the informal integration that had already gone moved apace in the 1980's. Why?

Fear of Washington

The fault lay on both sides. In the case of Japan, it was fear of Washington. The early nineties were the years when Apec was being pushed by the US and Australia as a trans-Pacific free trade area. Japan wanted to stop the Apec blueprint, but it did not want to antagonize Washington by openly endorsing an opposing mode of regional integration. It wanted especially to distance itself from anything that might be seen as supporting the proposal for an East Asia Economic Grouping, a vision of a unified economic bloc involving Asean, China, the Koreas, and Japan proposed by Prime Minister Mahathir of Malaysia.

Far more serious in its consequences was Japan's failure to carry through with its proposal for the creation of an Asian Monetary Fund, which would have pooled together the reserves of the more prosperous countries to serve as a pool of funds which members whose currencies were under speculative attack could have access to.

The damage done to the credibility of Japan by its backing down on this issue was very great. Many Asian governments thought that with the establishment of the Fund, the outcome could have been very different. Instead they were left to the mercy of the IMF and Washington, split in their strategies for survival, with only Malaysia brave enough to follow a path that defied the IMF. It is true that funds were later allocated to the region under the Miyazawa Plan, but this was only under the framework of IMF stabilization programs and only after the big Asean economies had gone under. It was a terrible diplomatic debacle for Japan, and one which reinforced the perception of many Asians that Tokyo had not shaken off the psychology of the Occupation when it came to dealing with Washington.

ASEAN: Loss of Direction

The Asean governments were not without fault in the process, however. They supported the Asian Monetary Fund for obvious reasons, but except for Mahathir, there were no leaders or governments that were really serious about moving on to more advanced levels of integration and coordinated economic policies. One can say that they were satisfied with the level and the mode of informal integration that had already been achieved at the level of manufacturing and saw no good reason to move further or to formalize economic institutions that would govern the level of integration already achieved.

Perhaps the hesitation sprang from the fact that the Asean governments were themselves having problems carrying through their integration at the Asean level. It is true that in the early nineties, the Asean Free Trade Area (Afta) had been negotiated, but in the beginning this was largely as a defensive move, in response to the threat of an Apec free trade area. However, the pace of actual trade liberalization was quite slow throughout the nineties. Indeed, it was hardly proceeding at all, owing partly to the desire of the different governments to protect their prized agricultural commodities and their industrial elites.

As for industrial integration, programs such as the Asian Industrial Complementation Scheme had either withered on the vine or had been utilized mainly by Japanese corporations to rationalize the distribution of the industrial plant they were in the process of moving from Japan to Southeast Asia. Industrial integration was in progress, but it was one that followed the logic of subsidiarization of Toyota, Nissan, and Matsushita, and Fujitsu, one which was directed at creating a manufacturing base from which to assault the US market without being subjected to US sanctions. This was hardly the integration that the founders of Asean had in mind, but it was one which their successors allowed to transpire owing to their own lack of capacity to pursue a different project.

The failure of a more directed industrial integration showed that in contrast to the late sixties, Asean was unsure of where to bring trade and industrial cooperation in the 1990's. It is fair to say that there were two directions that existed, and that the tension between the two had never been really resolved.

One direction saw the reduction of trade barriers among the Asean countries as a prelude to their participation in a broader free trade area like Apec, in a word as a step towards global free trade. One might say that the technocrats in Singapore and Manila thought in this fashion.

The other direction was followed by those who saw the lowering of tariffs against one another as a move towards a different strategic objective, which was that of creating a large, protected regional market that would serve as a base for regional import substitution. This use of trade policy for industrialization, which many technocrats in Indonesia and Malaysia shared, was, in fact, the original thrust of the United Nations-sponsored "Robinson report" that had served as the intellectual and policy inspiration for Asean in the early sixties.

For all intents and purposes, Asean remained primarily a political project, and in contrast to the lagging Afta, the expansion of the Asean Regional Forum (ARF) absorbed the energies of Asean governments in the mid to late nineties, that is, until the Asian financial crisis decisively disrupted the ambition of Asean to play effective balance-of-power politics among China, Japan, and the United States.

Fatal Flaw

Perhaps a fatal problem in Asean that would also dog other projects such as the Asian Monetary Fund, East Asia Economic Grouping, and the Asean plus three currency arrangement (plus Japan, Korea, and China) is that it remained an elite project. The nature, purpose, and directions of these groupings were discussed mainly among technocratic and political elites. The people were never brought into the equation in terms of mobilizing them to support these arrangements.

The Asean project, for instance, was never democratized, and this failure did not stem from the so-called authoritarian-democratic divide among the Asean governments. Neither the democratic Philippine government under Cory Aquino or Fidel nor the authoritarian Indonesian government under Suharto was really interested in involving their citizens actively in the Asean enterprise. Not surprisingly, "Asean brotherhood" remains a big joke, except perhaps among chief executives and diplomats. In fact, although it was established much later than Asean, the regional trading group Mercosur in Latin America enjoys a greater resonance in the popular consciousness of the citizenries of the participating governments than Asean among the peoples of Southeast Asia.

The problem in not bringing along people actively is that once the will at the top falters, there is no momentum below to keep things moving. The obverse of this is illustrated in the European Union-if you move too fast at the top and don't bring people along, they'll slow you down at some point, as the Danes and other citizenries did to the European Union after Maastricht Treaty.

Strategic Cooperation and Survival

There is widespread realization in governing, economic, and academic circles by now that without closer regional ties, most East Asian countries will be marginalized in a 21st century global economy dominated by big blocs such as the European Union and North American Free Trade Area. Some say that only China and India have the requisite combination of people, capital, skills, resources, and political strength to attain the status of effective players.

The need for closer strategic economic coordination and integration is not simply a response to the volatile character of the global economy but to the intensely competitive superpower economics that has been unleashed by the United States, especially since the end of the Cold War. Cooperation and competition have marked the economic relationship between East Asia and the United States since the end of World War II, but whereas one can say that prior to the end of the Cold War, cooperation predominated owing to the priority of the anti-communist alliance, since the early 1990's, competition if not antagonism has become the dominant feature of the relationship. Keeping Asia weak politically, economically, and militarily became in the course of the 1990's the key strategic thrust of US policy in the region.

Necessary Conditions for Success

What are some of the necessary conditions for a successful move toward a regional economic bloc?

There are at least four, some of which have already been touched on indirectly in the analysis given above.

  1. First of all, Japan has to shake off the deep dependency it has on Washington and move towards decisively representing the regional interest. This is the critical decade, when Japan has to choose between Asia and Washington. Sticking to the old policy of subservience towards Washington's dictates will guarantee slow-motion marginalization as an economic power.
  2. The leaders of Asean will have to jettison the crippling paradigm of free trade and free capital flows with which Washington and the IMF have straitjacketed their economies following the Asian financial crisis. They have to reorient Asean along the original vision of a planned protected regional market, marked by technology sharing and a healthy, rational division of labor. This is also the perspective they should bring to the larger project of East Asian economic coordination and integration.
  3. In order to be sustainable, regional integration must be popularized and democratized. This means, among other things, that it must be made meaningful in terms of its benefits to the people. No longer can it be justified simply in terms of growth. It must be shown to have benefits in terms of ending poverty and reducing inequality both within countries and across countries. Environmental consciousness is now on the rise throughout the region, and to really catch on, regional integration must be shown to have benefits in terms of enhancing the quality of life and the quality of the environment throughout the region. This means, among other things, that Japan must stop treating Southeast Asia and China as the dumping ground for its dirty industries under the guise of regional industrial integration.

Mobilizing people in support of a project of a regional integration will necessitate not just promises from above but making sure that among the institutions created will be those that will allow participation of labor unions, peasant organizations, environmental organizations, and other civil society organizations in decision-making. The days when technocrats, politicians, and industrial elites monopolized decision making when it came to regional coordination are over. Whatever one thinks about civil society groups or NGOs, they are on the rise and they will make tremendous demands for inclusion in decision making in this decade. Asians have to learn from the experience of the European post-Maastricht that regional integration carried out with marginal participation from electorates and civil society ultimately backfires.

Finally, any Asian economic bloc that emerges must not only include Asean, Korea, and Japan. It must most definitely include China. A regional enterprise that excludes China would eliminate one of the key sources of economic dynamism in the region. Being one of the centers of sustained growth, China's role in reflating the regional economy in what is threatening to be a decade of global deflation and recession cannot be understated. Of course, there are major problems that have to do with comparative labor costs, investment competition, and export competition that need to be sorted out, but these must be the subject of negotiations within a broader framework of strategic cooperation.

Keeping China out of any regional arrangement on the grounds that it is too big will simply play into the hands of Washington's strategy of playing off the countries in the region against one another in order to keep Asia divided and weak.