T. J. Pempel and Keiichi Tsunekawa, eds. Two Crises, Different Outcomes: East Asia and Global Finance

Abstract

Two Crises, Different Outcomes: East Asia and Global Finance T. J. Pempel and Keiichi Tsunekawa, eds. Ithaca: Cornell University Press, 2015, viii+267pp.More Financial Crises Ahead?Two Crises, Different Outcomes: East Asia and Global Finance makes three key assertions: first, contrary to the school attributing the Asian financial crisis to "crony capitalism," the debacle of 1997-98 was due largely to unregulated capital flows that flooded the region then quickly fled at the onset of the macroeconomic distortions they had brought about.Second, the United States and Europe could have avoided the financial collapse of 2008-09 had they learned the right lessons from the Asian financial crisis and strengthened instead of dismantling or weakening their systems of financial regulation.Third, learning from the Asian financial crisis, the East Asian economies took steps to prevent a rerun of that crisis, including making currency swap arrangements, limiting their exposure to new financial products like credit default swaps, and, above all, building up massive financial reserves derived from intensified export-intensive trade strategies. These measures insulated them from the 2008-09 global financial crisis.To be sure, these three arguments have been made by others in the academic and political debates that followed both crises. But it is worth restating them cogently and with strong empirical backing, as the book does. Moreover, the essays on the region's different economies provide important nuances to the book's central arguments. For instance, Yasunobu Okabe's paper on Korea and Thailand claims that in contrast to Thailand, Korea's post-Asian financial crisis regulation of capital flows to foreign bank branches was quite lenient, and this nearly brought Korea to its knees again in 2008; the country was saved from "a second financial crisis through a $30 billion currency swap approved by the US Federal Reserve Board in October 2008" (p. 105). Had Korea had a second financial collapse, who knows what the knock-on effects on the region might have been? We might now be writing on how the East Asian region was drawn into the maelstrom of the global financial crisis.Some of the essays provide us with interesting insights into the institutional contexts of the different countries' responses to the two crises. Barry Naughton, in his essay on China, says that while the response of the Chinese government-the rolling out of a stimulus program-was superficially similar in both the Asian financial crisis and the global financial crisis-the institutional contexts were different. During the Asian financial crisis, the stimulus was intended by reformoriented Prime Minister Zhu Ronji to be an emergency measure within a liberalizing trend, while during the global financial crisis it was part of a return to greater state intervention under the Hu Jintao-Wen Jiabao leadership.In varying degrees the different authors make the point that while East Asia may have dodged the bullet during the global financial crisis, it is not out of the woods. In fact, not only is the era of high growth over, but structural crises are catching up with the different economies of the region. Building up financial reserves via vigorous export drives and largely staying away from Wall Street's dangerous financial innovations like securitized mortgages and "credit default swaps" may have saved the Asian economies from the worst effects of the global financial crisis, but their deeper problems remain unresolved-problems stemming largely from the region's integration into the global economy.What are these problems? As the essays make clear, though the Asian economies have structural similarities, each of them has its unique configuration of challenges. Japan, Tsunekawa points out, cannot seem to shake off its quarter of a century of stagnation owing to pendulum swings between neoliberal reform advocated by reform technocrats and increased public spending in response to electoral pressures. …