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Economic Democracy

At 11:02 PM 09.06.98 -0500, you wrote:
>Dear Suresh: I couldn't read the article you posted because my mailer
>couldn't read it. Can you tell me where you found the article? Even better,
>can you send me a text version?
Dear Prem, i am posting this reply on Indian Policy in case others have similar difficulty. Also i am using the opportunity to highlight the most important issues raised in the article. the article is copied from 8 June 1998 issue of Newsweek.

the point which caught my attention is made in the 3rd para of the article, which has been highlighted in the following text. nothing new here but when it is made by Sin Ming-shaw, who is a highly respected economist , it carries weight. i will repeat again, unfettered capitalism is the basic precondition for economic success. man is a greedy animal by nature and he works best only when he can clearly foresee the rewards of his labour. successful economies exploit this trait of man instead of lecturing him to work for the common benefit of all. of course the weaklings of the society need to be protected, but this is done more by providing them with better opportunities rather than over-righting their failures. what must be avoided is secure positions for unproductive man-power as is done in many state and public sector enterprises in india, china and elsewhere.

another point i wud make is about the relative strengths and weaknesses of Hong Kong and Singapore models. your group has repeatedly extolled the singapore model, whereas i have not seen HK mentioned even once. singapore is a very successful economy and does deserve all the praise bestowed by several group members. i wud however highlight some of the weaknesses of singapore which successful india must avoid. ( i am copying this to Sanjeev's brother Varun Sabhlok in Singapore in case he wishes to comment). what singapore lacks is true democracy and press freedom. also the legal system tends to favour the people in power. this is used to advantage by the singapore leaders and it does work.....but it works only as long as the leaders are sincere and truly patriotic. singapore is very fortunate to have a very dynamic and truly patriotic leader in Lee Kuan-yew who has very lovingly seen to it all these years that singapore follows proper economic principles for success.....he is truly a fatherly figure who has always placed his family (i.e. all of singapore population) before himself. i wud be concerned abt singapore after he is no more because the system in place may allow the leaders to exploit it to their own personal advantage.

Another thing to note about singapore is that its economy is very carefully guided by the leadership.........again it works because the leadership is sincere. it may not work so well if some unscrupulous people capture power, as the checks and balances of a true democracy and free press and free judiciary are not in place.

HK too does not have a true democracy in place yet (though the constitution provides for fully elected legislature and Chief Executive by 2007)....but it has a very free press....one of the free est in the world, and 100% respect for the rule of law which is very fair and does not protect any vested interests (including the mainland). also as a policy the economy is almost entirely controlled by the private sector with the least possible interference from the govt. that the system works is there for all to see. as the system us not totally dependent upon good leadership, it is likely to withstand bad leadership better than any other economy i can think of. it is true that HK economy is presently going through a down turn but this is an outcome of today's interdependence of all economies globally. all asian economies are suffering because of the system flaws in Indonesia, Thailand and even Japan, and even USA cannot remain untouched. fundamentals however are strong in HK and without doubt it will emerge even stronger than before within the next 2-3 years. yes, HK economy is very heavily dependent upon Chinese economy, very little HK can do about it given its size.

Do above comments have any relevance for the group discussion? only to the extent that we must work for as free an economy and press as possible. And we must ensure a legal system which is 100% fair and which is effective in meting out justice in a timely manner. (justice delayed is justice denied, as is the case in present day india). another thing we must copy from singapore and hong kong is a very well paid civil service in order to avoid temptations. keep it as small as possible but pay them well so that the best brains are attracted. also keep them fully answerable. hong kong has in place a very effective 'Independent Commission Against Corruption"...... a very powerful body which itself is not corrupt and which really is very effective.......something which india could copy.

i am unable to take active part in your discussions...which perhaps is good because i simply do not have the required talent....but i am sure that you all are on the right track and will surely make a dent in the system.....hopefully a very big dent, actually a total transformation. Go India Policy!!!

and now the text of the article:



By SIN Ming-shaw

Asian autocrats, wake up: those democratic hordes can turn out to be your best friends

In recent years, leaders of a number of well-to-do Asian countries have mounted a rather sophisticated attack against genuine democracy. They appeal to "Asian values," an idea, it must be noted, that has also won sympathy in the Western corporate world. These leaders point out that even the usually staid World Bank has recognized their phenomenal economic track record as an "Asian miracle." They attribute this success largely to an Asian stress on social harmony and a respect for political authority. The Asian cultural mind-set, they say, is so different from the West’s that a contentious Westminster-style democracy is wrong for Asia. In any case, they claim that Asians do not have a sufficient level of education and sophistication to make democracy work.

Most Asians do not buy these arguments, of course. The South Koreans and Taiwanese, for example, have completely rejected the ideology of Asian values to live in thriving democracies. Now the recent events in Indonesia and last week’s election in Hong Kong - where an overwhelming turnout favored the Democrats - might convince much of the world that democracy has won new victories. But it is premature to suggest that the protagonists of Asian values have learned the right lessons. Tung Chee-hwa, the chief executive of Hong Kong and a deeply sincere autocrat, is unlikely to believe democracy is right for Hong Kong regardless of what the people want. He studied in England, lived in the United States and came away with an open disdain for Western democracy. He and other advocates of Asian values essentially view voters as "barbarians at the gate" to be warded off, not served.

Are they right?

It is clear that political democracy is not a prerequisite to economic growth. The track record of the Asian tigers for most of the post-war years confirms that. But capitalism is irrefutably a precondition of economic success. True capitalism is really true economic democracy, where private ownership rights and access to the marketplace are rigorously protected by a fair judicial system. The broader the economic rights enjoyed by the people, the more sustainable economic growth is, and the fairer wealth and income distribution are. This is the history of Singapore, Hong Kong and Taiwan. On the other hand, South Korea when it was dominated by conglomerates, the Philippines under Marcos and Indonesia under Suharto were classic examples of distorted market economies practicing what is best described as crony capitalism. These countries did not have economic democracy. In the end, they produced inefficient, unfair societies with disastrous political consequences.

Is political democracy an inevitable outcome of a successful economic democracy? As people become wealthier and better educated, they naturally want their views and preferences reflected openly, fairly, without fear, in the kind of political system that only democracy can accommodate. That doesn’t mean their leaders will agree that democracy is a desirable end in itself. Nonetheless, Asia’s remaining autocrats had better get wise to the practical advantages of political democracy. Contrary to the tenets of Asian values, democracy is a far more stabilizing institution than an unrepresentative autocracy can ever be. Look at what happened in Indonesia. Most people there shared little of the growth in past years, nor did they have a say in how wealth and opportunities were distributed or frustrations expressed peacefully. Is it any wonder that they used violence to protest against high prices and layoffs?

In Hong Kong the lack of democracy will hurt the government’s ability to deal with a looming economic and fiscal crisis. The territory’s main problem is outrageous land prices - pushed up by the government’s long-standing reliance on land sales and related incomes as a source for as much as 30 percent of the annual budget. Since colonial times, these huge land revenues have enabled the government to maintain Hong Kong’s legendary low corporate and individual income-tax rates. More than half of Hong Kong’s stock-market capitalization is derived from property, and the real-estate sector accounts for well over 40 percent of the local GDP. It is little wonder that the private sector property cartel has become a politically powerful force.

While property barons flourish, many Hong Kong enterprises have been priced out of the market and half of the territory’s people, unable to afford their own homes, must live in public housing. If it is therefore in the long-term interest of Hong Kong to allow property prices to fall freely much farther than they have recently, how will the government handle future fiscal deficits? Should tax rates be increased? Should tax exemptions be curtailed? Should Hong Kong switch to a value-added tax to increase its conspicuously small tax base?

At present, thanks to a paranoid attitude in Beijing - and in the person of Chief Executive Tung -Hong Kong’s legislature does not have the wide franchise that Tung urgently needs to help him formulate a policy for all of people in Hong Kong. The Democrats might be the most popular party in the territory, but election rules give them only a minority of legislative seats. The irony is that Tung now needs the Democrats more than they need him: if the economy continues to slip, a near certainty, the popularity of the chief executive and the unrepresentative legislature may slide even further, a potentially dangerous development. People would rally behind a true democracy only in hard times. How unfortunate, therefore, for Tung and Hong Kong that he has concluded from his years in the United States that democracy is not a good system for Hong Kong’s Chinese.