Remarks of Deputy Prime Minister Dr. Supachai Panitchapakdi at the Greening of Industry Network-Asia policy forum, July 28, 1998, at Chulalongkorn University, Bangkok, Thailand. Title: Three Different Realities: Lessons from Asia

It is truly a great pleasure to be present at this major event--the inauguration of the Greening of Industry Network-Asia. First of all, let me welcome all of you as special guests of our country.

Apart from the academic discussion you are going to have in the next days, please take this opportunity to visit and learn about Thailand and our culture. Special events have been arranged for this year--Amazing Thailand. At the some time, you may have the opportunity to explore our environment and suggest ways to minimize the impacts arising from industrialization and urbanization.

I am delighted to have this opportunity to discuss the development situation and prospects for Asia with such a broad and distinguished array of thinkers on environmental policy and economic recovery. I would like to spend my time today discussing my views on what I see as three realities: (1) the so-called economic miracle in Asia; (2) the current economic crisis; and (3) the important development imperatives that are still to come. I particularly want to underscore the opportunity that may exist in the current situation for putting Asia�s growth on a more sustainable footing, as well as some of the implications for those of us concerned about the environment.

The First Reality: The Economic Miracle

In the context of the ongoing economic crisis, many are asking, "Was the East Asian Miracle a reality or a myth?" Whether a miracle or not, the extraordinary economic performance of the past several decades in East Asia was real. We can see our achievements in the number and origins of the young men and women at this university, in the virtual explosion of industrial manufacturing centers across our region, in the income and income distribution figures collected by our economic think tanks, and in the products and components that originate in Thailand and that you use each day.

 Indeed, from 1965 to 1990, the 23 economies of East Asia grew more quickly than all other regions of the world. Most of the growth was attributed to nine countries: Japan, Hong Kong, Republic of Korea, Singapore, Taiwan, China, Indonesia, Malaysia, and Thailand. Recall that in the 30-year period between 1960 to 1990, these nine countries grew three times as fast as Latin America and South Asia, and five times faster than Sub-Saharan Africa.

These nine countries successfully shared the fruits of growth among their citizenry. As per capita income grew, income distribution improved. They were the only economies in the world that had high growth and declining inequalities. As a result of rapid shared growth, human welfare improved dramatically. Life expectancy increased from 56 years in 1960 to 71 years in 1990. And the proportion of people living in absolute poverty--lacking such essentials as clean water, food and shelter--dropped. In the case of Thailand, absolute poverty fell from about 45 percent in 1960 to less than 10 percent in 1990.

What was the root of this success? In large measure, I think we started with declining economic fundamentals. Private domestic investment and rapid growing human capital were important engines of our growth. Strong domestic financial savings practices sustained high investment levels. Agriculture, while declining in relative importance, experienced rapid growth and productivity gains, and population growth rates declined faster than in other countries. Some of our economies had a head start because of better-educated labor force and more effective system of public administration. And, frankly, we implemented sound development policy. Macroeconomic management was good and macroeconomic performance was stable, providing the essential framework for private investment.

But we certainly hadn�t reached nirvana. Even before the onset of the recent crisis, a debate was rising about our success and the "East Asian model." And that debate was taking place not only at the International Monetary Fund and within the World and Asian Development Banks or at Clark and Harvard Universities, but also at Chulalongkorn University and the Thailand Development Research Institute, within government and, yes, within our own political structures.

In addition to the factors I outlined earlier--the so-called fundamentals--we recognized that our approach depended upon centralized coordination of activity over decentralized market incentives, which targeted certain industries, promoted selected exports, and protected domestic industry. In some places, we also recognized that there was a greater reliance on debt over equity, and on informal rather than formal mechanisms in our capital markets and in our public oversight. And while perhaps no one predicted the events of the past year--occurring so suddenly, so harshly and so persistently--signs of the things to come did exist.

The Second Reality: The Economic Crisis

Just as I have sought to confirm the reality of the economic miracle, so too I must confirm the reality of the economic crisis. What happened? I am sure you all know as much or more than I, and you certainly have access through the Internet to read the opinions of leading scholars, business and financial leaders, politicians and government officials, and the press.

What do I think happened? Financial sector weaknesses? Certainly. External-sector problems? Certainly. Local, national, regional, then global contagion? Most certainly.

Perhaps more seriously, the longer-term issues that began to surface and to be discussed in the early 1990s--and to which I referred above--got mixed up with a set of shorter-term problems, including: the maintenance of inconsistent monetary and exchange rate regimes; the misdirection of foreign capital to unproductive investments; attacks on our global competitiveness; and perhaps some failures in debt management�which cumulatively produced the crisis, which, then, fed on itself and was reinforced by a collapse in market confidence. And so here we are talking about economic recovery and sustainability. A year ago, we would have been talking about rapid economic growth and sustainability.

We have something important to learn about sustainability from how we are approaching the crisis--something quite profound that will help to shape the next development period. But I don�t want to get ahead of myself. What are we doing to address the immediate problem? I can only generalize across the region, although I will also draw heavily on what we are doing in Thailand.

Most of us have moved beyond the short-term adjustments and are now developing the longer-term reforms necessary to make our macroeconomic systems more transparent and accountable. This is a very big step for most of us, with profound significance for our systems of governance, but I think there is acceptance, at least, for the regular publication of foreign reserve and other data which should assure greater public scrutiny of policy decisions. And this, in turn should help build both consensus and confidence.

Most of us understand that we need to do more than tinker with our financial systems. In many cases, we will need new ones. While popular attention and the press have focused on the closure balanced contributor to global growth and trade. If we can restore growth in living standards and opportunities, the benefits will resound to all of our advantage since we are talking about a region after all where two-thirds of the world�s population live-which takes me to the third reality--the Asia of the future.

The Third Reality: The Next Period

And so what will happen? What is the next period likely to look like? Part of the answer, of course, is dependent on how we come out of the ongoing economic crisis and our approach to reform. But another part of it depends on how clearly we understand the development imperatives that will shape the next period. Let me suggest just a few-three ongoing revolutions.

First, we are all in this together. The next period is not one for Thailand alone, or ASEAN, or APEC. The increasing involvement of both developed and developing countries in international markets, and the growing international movement of goods, services and money distinguishes the current economic regime from what went before. The end of the Cold War and the spread of liberal economic ideas, combined with increasingly rapid communications, transportation and standardization of products, has first, opened up goods markets and facilitated trade and, second, facilitated the rapid flow of capital across international borders. Rising levels of imports and exports of primary, intermediate and finished products, and expanding flows of investment capital increase the dependency of countries on the economic well-being and continued flow of goods and capital from their trading and investment partners. Global actors and trends are no longer tied to, or even controlled by, particular nation states. Trade, investment and speculative flows move freely and often rapidly across borders, with substantial impacts on domestic economies. We in Asia are seeing that here. Those of you from the OECD countries are seeing that there. Again, we are all in this together.

Second, this new global circumstance has brought more than the mere adjustment among states--rather a radical redistribution of power among states, markets and civil society. National governments are not simply losing autonomy in the process of globalization, they are having to share powers--including political, social and even security roles at the very core of sovereignty--with businesses, international organizations, and multitudes of citizens groups.

Increasingly, resources and threats that matter, including money, information, pollution, and even popular culture, circulate and shape lives and economies with little regard for political boundaries. International standards of conduct are gradually beginning to override claims of national or regional singularity. Even the most powerful states find the marketplace and international public opinion compelling them more often than not to follow a particular course.

Whether this will be a good or bad thing will depend on whether we can launch our societies on a course of rapid social innovation--much as we did in an earlier period with the "green revolution" and in the creation of the East Asian Economic Miracle. We will need a business sector that can shoulder a broader policy role, non-governmental organizations that are less parochial and better able to operate on a large scale, international organizations that can serve the dual masters of state and citizenry, and, above all, new institutions and political entities that match the international scope of today�s challenges while meeting citizen�s demands for accountable democratic governance.

Third, and perhaps most closely related to the core ideas behind the Greening of Industry Network and this policy forum, we must recognize that performance will be the standard on which our economies will be judged. We see proof of that in the new global marketplace, in terms of the proverbial "survival of the fittest." But we are also seeing new social and environmental factors creeping into the definition of performance, and therefore into the judgment of the marketplace. I am seeing, for example, the demand for environmental protection reflected in the marketplace here in Bangkok. Anyone who has worked in Asia over the past several years is familiar with the power of ISO 14000 to draw a crowd of industrialists, or the response of suppliers to the greening criteria of their multinational clients, or the aggressive advertising done by the chemical industry to promote their commitment to "Responsible Care," or even the new pro-environmental criteria being incorporated in the due diligence mechanisms of private financial institutions. This is quite remarkable. And while many of us may want to resist the trend, using the argument of "trade barrier," a good part of the pressure, frankly, is from consumers from as far away as Copenhagen and Bremen which are finding voice in the new global marketplace.

 Capitalism obviously needs to be employed. That is understood and reflected in the debates with the International Monetary Fund about the need for a social safety net at this critical time. But, as the noted environmental observer Gregg Easterbrook has so eloquently argued, "...If there is one thing market economics does infuriatingly well, it is producing lots of whatever it is asked to produce. Now that capitalism increasingly is asked to produce environmental protection, lots is coming."

So, there we have it. My sense is that the next period will be defined by three revolutions: the continued globalization of the world economy, the changes in national governance occasioned by the related revolution in civil society, and finally by what I believe could come to be understood as a "clean revolution"--meaning the widespread and continuing development and adoption of ever less polluting and more resource efficient products processes and services.

Lastly, I truly believe that 25 years from now, Asian economies as a whole will be an integral part of the global market and productivity. Yes, we are facing a crisis now, but I am sure we will come out of it stronger and with a better economic foundation. Policies related to industrial transformation, investment, and environment will have to go hand-in-hand to assure long-term sustainability. I hope this forum hosted by the Greening of Industry Network-Asia will be able to assist in this crucial revolution.

May I now declare the opening of the Asia Policy Forum under the theme of Economic Recovery and Environmentally Sustainable Industry in Asia: Compatible Goals?"