Nevertheless, as the financial slump deepens and uncertainty over the US presidential election ends, sovereign wealth funds will re-enter the market as bottom feeders, picking up impaired financial sector assets at fire-sale prices, such as Japan’s Mitsubishi Bank is doing with Morgan Stanley and Nomura Securities has done with Lehman’s non-US assets. This happened after the Asian crisis; the shoe is now on the other foot. But unless Americans are willing to accept foreign governments controlling prime financial assets that lie at the heart of the US capitalist system, these inflows probably will not be large enough to make a significant difference to capital markets.
Asian consumers are also not likely to rescue the US economy by purchasing more US exports, since the US accounts for over 20 per cent of world GDP versus 5 per cent for China, and any increase in Asian consumption is much more likely to involve purchases of commodities, manufactures and services from one another, than from the higher-cost, more distant US.
So salvation for the Western world’s economic downturn won’t come from Asian capital or consumption. Perhaps more significantly, the flaws of capital-market-driven economics in the West, and of political-protest-ridden emerging democracies in the East, may encourage a return to more statist and less-democratic economic and political regimes in Asia - an about-face from the market and political liberalisations of the 1990s.
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We can expect three outcomes:
First, financial liberalisation, marketisation and democratisation in Asia will proceed at a slower pace given the risk-aversion reintroduced by the current global financial turmoil.
Second, Asian portfolio and direct investment in the US will continue to increase, but not hugely or immediately.
Third, in contrast to one-way learning-from-the-West how to manage a financial system after the Asian crisis, there will be more two-way learning and sharing, involving a larger, stronger role for government as regulator and investor than imagined 10 years ago. Rather than global capital market actors disciplining governments, expect to see governments disciplining capital market actors for some time to come.
Finally, do not expect a major reorientation of Asia’s economic growth path away from the high-savings, low-consumption, high-investment, high-exports, high current-account-surpluses, high foreign-exchange reserves and managed-currencies model. Far from withering away, in both Asia and America, the state-in-the-economy is here to stay.
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