Babes in the Asian Woods

• Detailed Comments

Introduction

Suggestions have been presented about ways to reduce the risks Australians face in coping with the emergence of a real 'Asia century' in the near future, due to the damaging effect which the global financial crisis (GFC) has had in the US and Europe on whose support Australia has traditionally relied.

Australia needs to develop solutions to deal with the Asian century - and quickly because the GFC has accelerated growth disparity between US / Europe and Asia. Mark Johnson (formerly Macquarie Bank) says US damaged its status with Arab world and Asia by Iraq war and GFC. Thus Australia must invent its own solutions (eg different investment rules for state-run / Chinese companies) - because of impact of GFC on US. Australia is part of global shift to Asia Pacific and involved in APEC whose purpose is coping with the Asia-Pacific century. One goal of current APEC meetings (identified by Singapore's PM) is to promote trade / economic activity. APEC was conceived by Hawke Government and includes world's three biggest economies. Its task is becoming harder because of GFC. Peter Brain (NIEIR) notes that state capitalist economies are recovering fast - and this will affect trade relations, foreign policies, dominant economic ideology. Kevin Rudd is trying to formalize structures to avoid conflicts like those in 20th century Europe. He believes existing arrangements are not broad enough - ie don't cover regional security, economic growth, trade and investment. Asia has world's largest militaries - many with nuclear weapons. Richard Woolcott (Rudd's envoy) expresses concerns about competition over territory / resources and environmental / energy challenges. There is also a need: (a) for regional architecture to deal with: proliferation, WMD, illegal movements of people, transnational crime, terrorism, climate change; and (b) to recognise how badly wrong things can go - as Europe's experience shows. This does not however propose the level of integration now in Europe (eg with ECB). Owen Harries argues that Rudd is trying to ride two horses- China and US and reduce the risk of them conflicting. Australia's position is boosted by participation in the G20. It is also promoting an 'Australian model' for regulation (as a good, rather than 'nasty western', model). New rules will need to be developed to deal with investment by state-run Chinese companies. Complementary or even integrated, financial rules may emerge across the region. Diane Lin (Pengana Asian Equities Long Short Fund) says China's development model is shifting into high value-added as Japan did in the 1970s and 1980s. Thus demand for Australia's resources will grow more slowly. (Clark A., 'The risks in the region', Australian Financial Review, 7-8/11/09)

However the main risk that Australia faces, which is illustrated by the views quoted in that article, is the result of the lack of 'Asia literacy' even amongst those who are supposed to be most experts in the area - because Western analysts try to 'understand' Asia from a Western perspective but don't understand it from an 'Asian' perspective.

The difference is critical because, unless the 'Asian' perspective is recognised:

• assumptions being made about an 'Asian century' may simply be wrong (eg 'Asia' may be much harder to deal with, or wracked by economic reversals);
• proposals for developing a regional community through APEC to minimize the risk of conflict (or integrated financial regulation) have little prospects of success;
• 'babes in the Asian woods' risk being eaten by polite-faced wolves. Substantial strengthening of Australia's institutions seem advisable to avoid such a fate.

Reasons for these suggestions are developed further below

Detailed Comments

There is no doubt about the importance for Australia of developing more effective ways to deal with 'Asia'. However it is vital to do so with more attention to an 'Asian' perspective of 'Asia' than is shown by those cited in the above article (see Lack of Asia Literacy in Australia's Governance Crisis).

Why?

Firstly the 'Asian century' may be vastly different to what is being assumed - because, when examined from an 'Asian' perspective, it is clear that the dominant economies in East Asia (ie those with an ancient Chinese cultural heritage) operate on the basis of traditions that are radically different to the Western traditions (which have, for example, involved individualism, rational problem solving, democratic capitalism) with which Australians are familiar (see Understanding East Asia's Economic Models and Unsustainable Economic Models?).

The latter speculates, for example, about two possible scenarios that could emerge because of the incompatibility between East Asia's economic models and the international financial / economic regime established under Western traditions, involving either:

• the emergence of a 'China-centred trade-tribute system' (somewhat like that which existed in the region prior to European expansion) as the real but behind-the-scenes way in which control of the region is exerted, despite the symbolic role played by Western-style entities such as APEC; or
• the emergence of crises in major East Asian economies in a post-GFC environment in which their domestic macroeconomic imbalances and poorly developed financial systems are no longer protected by a strong US financial system.

Secondly, these undiscussed incompatibilities have implications in relation to the suggestions for Asia recorded in the above article. For example:

• proposals are reportedly being developed (eg by Mr Rudd's envoy, Richard Woolcott) for an Asian Community which would hopefully avoid conflicts like those amongst European societies. However, a fair case can be that the failure to confront differences in cultural assumptions was a major factor in those conflicts in Europe (see Fragmentation of the Global Order in Competing Civilizations) - because of the resulting misunderstandings and poor communication. Similar causes seem to have a role in some current international conflicts which adversely affect Asia and the Middle East (see Discouraging Pointless Extremism);
• reference was made to the possible emergence of complementary or even integrated rules for financial regulation across the Asia-Pacific region. There are however obstacles to this - such as the difference between Western-style concepts of a 'rule of law' and East Asian 'rule-of-man' traditions (see Obstacles to Effective Global Regulation). Practical progress is unlikely to be facilitated by those who don't even mention such differences;
• suggestions (by Diane Lin) were cited about changes in China's economic model to be more like Japan's became in the 1970s and 1980s - without mentioning the economic hole that Japan fell into in the 1990s because of the incompatibility between its financial system and the global financial and monetary regime established under Western cultural traditions (see Japan's Predicament);

Thirdly, Asia is not kind to 'babes in the woods'. Though it is polite to allow others to maintain face, there are traditionally no Western-style universal ethics, which favours concern for the welfare of the weak. The Art of War needs to be understood, because in East Asia strategy really does traditionally involve deception, invisibility for the most powerful, exerting power by manipulating what others think, 'winning beforehand' by weakening enemies internally and bureaucratically-coordinated whole-of-society actions that won't be suspected by those who are unaware of the possibility.

'Babes in the Asian woods' have tended to be eaten by the polite-faced wolves.

The possibility that a form of traditional 'Art of War' strategy may have had a role in creating conditions leading to both of the events (ie the 'war against terror' and the GFC) which the above article identified as undermining the position of the US (and Europe) was indicated in Attacking the Global Financial System? (2001). The US's idealistic desire to spread the benefits of democratic capitalism to the less fortunate (by defeating tyranny (ie ignorance) on the battlefield, or providing markets to stimulate economic globalization on its preferred democratic-capitalist model) may have been a case of imperial over-reach. Or that over-reach may have been facilitated, on the basis of strategies that involve turning one's enemy's strengths into weaknesses.

There is a need to confront the question of how Australia can be successful when its traditional reliance on the US and European powers is limited. The issues that may need attention are suggested in Australia's Governance Crisis Though the latter was written with a different purpose, it perhaps also constitutes a first-draft theory about the institutional improvements Australia needs to safely operate more independently. The biggest risk Australia faces lies with people who think they understand the complexity of 'Asia', but lack the institutions to ensure that their understanding is reliable.

At the very least, if Australia tries to adapt to an 'Asian century' without dramatically strengthening its institutions, it will be found that those who try to advance the public good by speculating about regional / national public policy concerns (such as those the above article referenced) will find themselves manipulated as puppets (as the Hawke government may have been in first suggesting APEC), as power will go to those who invisibly do deals in back rooms for the benefits of themselves, their cronies and their ethnic groups. Ideals such as egalitarian and democracy will count for nothing.