Globalization: Social & Geographic Perspectives

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The Easternization of Markets?

March 22nd, 2011 · 1 Comment
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In his essay Globalism’s Discontents, Joseph Stiglitz argues that ¬†East Asian nations prospered via globalization by refusing to take on the Western model, but grew more naturally and assured “that the benefits were shared equitably”. Countries such as Taiwan and South Korea were able to do this by allowing the government to take an “active role in managing the economy”; subsequently, refusing pressure to de-regulate from the IMF and other members of the so called “Washington Consensus”.

After our current crisis, a crisis caused by hap hazardous financial practices as a result of de-regulation, more government intervention is required. Washington needs to create a series of regulations that are similar to the type of intervention Korea used on its steel industry. We need to Easternize the markets.

Government intervention in East Asia led to sustainable growth for over thirty years. Markets flourished and as a result inequality and poverty were much lower in those countries as opposed to the countries that assumed a more liberalized system. Stigilitz argues, that the financial crisis in Asia in the late 90’s was a result of “rapid liberalization of financial and capital markets”, much like the liberalization of the markets in US. Much like the markets in the in US today.

How Eastern of an idea is regulation? Perhaps all we need is to look back at our own history to realize the benefits of regulating markets. The last major financial crisis known as the Great Depression was also caused by in-moral activities by financiers, activities that were allowed because of the lack of regulation of the markets. Day traders would speculate on prices in order to profit, but such speculation caused a major credit problem and lenders called in on their investment leading to a financial melt down. As a result, a series of “New Deal” policies were enacted by Washington to deal with the crisis. Some of these policies attempted to prevent future abuses. Stiglitz in his book, Freefall: Free Markets and the Sinking of the Global Economy, argues that the Glass-Steagall Act was effective in regulating the economy by preventing speculation. During the years this act was enabled, the United States saw unprecedented growth, low income disparities leading to a strong middle class.

In the late 90’s this act was repealed. As a result financial institutions made bad loans and other in-moral activities that led to the financial crisis of 2008. Whatever region in may be in it would appear that the regulation of the markets is necessary in the modern world of economics in order to retain a significant amount of equity. We should look at the regulation of the East Asian markets and develop a similar system that would fit our society.

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1 response so far ↓

  • 1    Prof. Hala // Mar 28, 2011 at 12:52 pm

    Excellent post. Stiglitz’s perspective comes through loud and clear. You also ask a critical question: how “Eastern” is the idea of regulation? It’s true that we speak of “Asian” economic models and the “Asian state” (see Strange, Ch. 26). But even Adam Smith, hero of the Scottish Enlightenment, stressed the need for government regulation. Indeed, as you seem to ask, what’s so “Asian” — or so “un-American” — about the New Deal? This is precisely the bigger cultural debate going on right now around regulation. Many expected President Obama to be a “New Deal” Democrat. Instead, he and most of the Democratic Party seem to be in the mold of Clintonian “New” Democrats, pro-liberalization and deregulation. Social welfare and social protection no longer seem to be seen as “American” values, the way they were in the heyday of the New Deal.

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