TCS Daily

Asia's Election Triumph?

By George A. Pieler & Jens F. Laurson - November 24, 2008 12:00 AM

In times of political and financial upheaval, leaders must not forget that economics is decidedly not a zero sum game - quite the opposite. Absent coercion, economic activity is by definition for mutual benefit, and the more people benefit, the greater the benefit. It works almost like a perpetuum mobile, except better. The more money and goods flow, the more wealth is created in the process. If economics were a car you might say: the faster you go, the more quickly your tank must fill.

Though it may not be a good, or popular, time to mention this, with the financial system in shambles, the car industry on life support, oil companies facing hard times, and all.

For President-elect Obama, the danger of forgetting such basic truths is acute. He has signaled his belief in a winners-vs-losers concept of markets. A global recession creates losers globally, but there are those who profit in times of distress. In the mid-term, Asia may be the chief beneficiary of this turmoil, thanks to movements in the West that will exacerbate the crisis while trying to fight it.

Among the latter, are France's habitual, knee-jerk protectionist reactions to any crisis, the undue interference of German politicians in coercing banks into being 'rescued', and last but far from least, the American election result. All this augurs for more regulation, higher taxes, decreased risk-taking and less openness to trade.

Especially in an unprecedented crisis, these actions, policies, and behaviors are not likely to help-- they are prone to protract and aggravate that crisis. Regulation is needed, but the more-is-less rule still applies. So does the need for quality in regulation, a crucial fact since regulatory decisions helped bring the crisis: aggressively promoting sub-prime mortgages, allowing too much debt in some sectors (homebuying again, and investment banking) with no clear rationale, the Fed driving the dollar too low for too long. If such decisions were made without the pressure, what are the hopes now? Political reactionism, populism, and panic have rarely produced balanced and prudent decisions in regulating economic activity.

President-elect Obama, on whose word the world now waits, campaigned for higher taxes on capital, energy taxes, and micromanagement of corporate decisionmaking through tax and regulatory sticks (and a few carrots). He promised energy industry restrictions, and worst of all: protection for US industry against foreign competition and penalties for sending jobs overseas. Sunny-side commentators during the election campaign suggested that he doesn't really mean it, that Obama is playing to his base but will govern from the center.

That might be the case, but as of now, the President-elect has reaffirmed his policies in his post-election speeches and in how he chose his transition team and deserves being taken seriously.

US policy is about to prefer risk-aversion over risk-taking, industrial policy over free-wheeling entrepreneurship, and weigh the crucial energy-input down with "green" policies that might not pass a rationality test even in the best of times, trouble.

Avoidance of risk-taking is as risky as all but the most foolish risks taken during the tech- or the housing-bubble. Except those risks weren't backed by the global bureaucratic and political classes, all of whom now agree that risk is to be avoided. Risk avoidance as a universal guiding principle of global economic exchange, would be itself the most salient threat to our prospects of recovery.

With Obama-America and Europe less open to free trade, and less willing to lead the fight against tariffs and regulatory barriers, global GDP will take a hit. Protection, tariffs, export subsides, and industry bail-outs are always a bad idea, but invariably they most harm those participants in the economy who are most at risk, the poor ? world wide and at home ? the very people we are supposedly 'protecting'.

With Europe and the US pushing economic retrenchment, Asia, by resisting this spiral of time-tested crisis-aggravation, can quickly emerge as the world's center of economic power. Already Asia, broadly writ, is more resistant to regulatory outbursts, offers lower production cost, and is still riding a wave of new consumerism. Even as China discovers the need for regulation of industrial offenders (tainted milk, drugs, toys), it would take a long time for Asia to match the new Western habit of presuming no market decision is right until proved so.

In a way, then, the US election victory not only goes to Barack Obama—but also the continent of Asia.

Jens F. Laurson is Editor-in-Chief of the International Affairs Forum. George A. Pieler is Senior Fellow with the Institute of Policy Innovation.


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