When West Meets East

...And if he's right, Asia will be better off...

...cursor to political and societal reform...

...And his predictions aren't helped much by the tech downturn in the United States...

...But, sadly, the big stuff—free elections, openness to dissent, independent democratic institutions—wasn't much in evidence...

...BY MELANA ZYLAVICKERS Of all the dinner-party questions that arose among the small band of conservative journalists from Europe and America who lived in Asia during the 1990s boom years, the one probed with greatest curiosity was whether Asians would need democratic reform to make their capitalism successful...

...The latter are essential if Asia is to have what Rohwer calls "a free market for corporate control...

...So if there's going to be one rule-maker, maybe this isn't too bad...

...But most of the bigger players that have pro-liferated—the crony-built banks that funded property bubbles in the region—are now "basically bankrupt...

...Because the Internet does away with inefficient distribution, linking customers to the goods and services they want, it diminishes Asia's traditional weakness in distribution...

...The change in capital markets will come, Rohwer says, because the traditional channels by which household savings and other investment gets to firms are being supplanted in Asia...

...The only trouble with Rohwer's observations is they're almost wholly anecdotal—he makes little effort to gauge what proportion is being colored by Yankee education or how deep the influence goes...

...Thanks in part to their exposure to American business culture and education, the Taiwanese lead the Asian effort to grow original R&D, provide venture capital, and build national brands...

...And because the Internet does away with distances, it will let Asia maximize its talents for manufacturing products in a dispersed manner for a global market...

...Meanwhile the benign-authoritarian capitalism of Asia boomed on...

...But others embraced change, rejuvenating their management and adopting technological advances, or found themselves bought out by Americans at bargain-basement prices and had change imposed upon them...

...When the Americans took over—partly because of the Cold War—they allowed the Germans and Japanese [the use of patents and other business strengths...

...He notes the influence in Asia of American education and the exposure to American ways of doing business...

...The classic ascent—build an export firm, invest your returns in quickly appreciating assets such as property, borrow money through bankers to whom you are politically connected to buy still more of the assets, and watch your wealth grow—hasn't been working well since the crash of 1997 and 1998...

...In Taiwan, for instance, credit clubs still handle 30 percent of the transfer of household savings to borrowers...

...Rohwer tracks the latter firms, drawing loose parallels to earlier economic evolutions in the United States...

...As a result, change is being forced upon them...

...At bottom, big and free capital markets wrest companies from the clutches of cronyism, because they give a wide set of owners influence on corporate performance...

...Not only are banks consolidating and getting better management, but Asia's gargantuan pool of household savings—worth some $14 trillion at the end of 1999, with most of it in Japan—is beginning to stream into stocks...

...True, informal lenders such as credit clubs, in which a group of people's pooled savings are periodically auctioned to the bidder offering the highest return, are still widespread...

...We hoped so, though quite frankly the evidence was not easy to come by...

...Using the United States' economic history as a model, Rohwer demonstrates that stock and bond markets—by allowing corporate insurgents to get rid of poor managers— provide "the lubricant of a financial sysRohwer predicts that when catatonic Japan awakens, Asia's "free market for corporate control" will break through...

...tem that is allowed to be commercially objective in its judgments...

...Rohwer notes similar peregrinations to the United States by Hong Kong and Korean businessmen, and recounts how some scions of family empires have returned to Asia to shape their fathers' firms in the manner they'd observed in the United States...

...Reform is on the front burner in Asia because the ingredients of the region's past decades of success have gone bad...

...Rohwer predicts that when catatonic Japan, which controls 90 percent of Asia's pension-fund assets and is learning about mutual funds, awakens with an appetite to support great purchases of stocks and particularly bonds, Asia's "free market for corporate control" will experience a big breakthrough...

...Not too bad at all, particularly if the American principles of democratic capitalism flower in Asia along with Western technology that Lee Kuan Yew praises...

...In the near term, an even greater influence than Harvard MBAs might well be money—both from direct investments by American firms and from Asia's emerging but increasingly mature capital markets...

...Formerly an editor for the Economist and now a contributing editor to Fortune, Rohwer looks at the elements of Asian failure in the crash years of 1997-1998 and predicts how Asia might reform in future...

...Rohw-er notes that new issues by Asian companies drew a record $109 billion after the crash, marking the first time companies raised more in the market than from banks...

...To Remade in America, Rohwer gives the subtitle How Asia Will Change Because America Boomed...

...Rohwer makes much of the Internet's ability to supercharge business in Asia...

...He lets Singapore's elder statesman, Lee Kuan Yew, have the last word on the new relations between the United States and Asia: "If any single country is going to set the rules, I would rather have America...

...In 1990, 20 percent of Silicon Valley engineers were immigrant Asians, and Asians ran 29 percent of the firms started between 1995 and 1998...

...Through such efforts, they hope to break from the old model of manufacturing a few American-originated products efficiently and cheaply, often by subcontracting and selling for export...

...Some sought and found government protection, through bailouts and the like...

...The British kept their position as the leading imperial power by holding back...

...Almost 20 percent of Silicon Valley firms and 13 percent of sales are by companies with CEOs from China (primarily Taiwan...

...He has identified several encouraging trends, including the advent of professional management and some open-minded thinking in tradition-bound firms, the disciplining effects of the Internet, and the growth of capital markets that let money flow to its highest return instead of to politicians' cronies...

...Regular commuters between Taiwan and Silicon Valley even have a nickname: "astronauts...

...As currencies, stock prices, and property values have plummeted, Asia's old-style firms have been scrambling...

...A few Asian governments (led by Hong Kong and Singapore) seemed to recognize that the rule of law was essential to protect economic freedoms and to understand that small government and low taxes were useful as well...

...In the absence of American-style democracy, we were left to content ourselves with discovering new reflections of American institutions and economic strengths...

...Indeed, seen in the best light, emulation of the United States' economic practices is a preMelana Zyla Vickers is an editorial writer for USA Today...

...Here too, though, he provides only anecdotal evidence...

...industrial capability...

...While hardly a substitute, in business-dominated Asia these trends seemed hugely influential...

...Rohwer may be a little over-enthusiastic about the trends he's spotting, but he's clearly onto something...

...They've given many an Asian business its start...

...Rohwer points to the cross-fertilization of personnel, ideas, and money...

...Now the technology has spread around the world...

...Hong Kong magnate and publisher Jimmy Lai explains the value of that exposure this way: The great hope for Asians mulling how to harness the "technology, American ideas, American values . . . that will be prying open, will be invading all the world" is that Asians educated in the United States "will come to their senses and no longer rely on their fathers' way of doing things...

...It is this progress Jim Rohwer has tracked in his new book Remade in America...