Could the sun set in the East?

Talk of 'miracles' in the hot house economies of the Far East is inflated, argues Gerald Segal. Indeed, these 'Tigers' may soon be having trouble paying for pensions

There is something about an approaching millennium that brings out the myth-makers. One of the most prominent myths is that the coming century will be dominated by the people of the Pacific. Such a vision is myopic, for the recent success of many economies in Pacific Asia has created that most alluring of optical illusions, an "optimistic illusion".

To be sure, there has been remarkable economic growth in recent years in many countries on the western shore of the Pacific Ocean. By the late 1990s Pacific Asia has returned to where it was a century earlier; constituting one-third of the global economy. High rates of economic growth look set to continue in some states for another generation. These states of Pacific Asia have achieved levels of economic prosperity once only confined to the Atlantic world; a remarkable achievement.

And yet to praise such performance is far from accepting the notion that there is a Pacific Asia "miracle". There is no need to suggest divine or even unprecedented reasons for success, when the formulae in Pacific Asia are well known from the earlier history of the Atlantic world. Each success story in Pacific Asia has had a different mix of sensible policies, but all have had a strong belief in progress, open markets and eventually open political systems. Some, such as South Korea or Japan, have had a strong role for central government and large multipurpose companies. Others, such as Taiwan or Hong Kong, have had far smaller companies with somewhat less prominent roles for central government planners. Given the obvious diversity of the cultures and societies in Pacific Asia, it would be ludicrous to believe that they could all find a single common model for economic success.

The absence of a single formula for success is also an obvious refutation of the notion that there are specific "Asian values" that explain success in the region. Thrift, hard work, tight families were once described in the Atlantic world as "Victorian values", and are now said to be distinctly Asian. In fact, these are neither Asian nor universal values, they are merely the sensible policies in operation in those states in the turbocharged stages of economic take-off. They can be adopted by anyone.

More importantly, these policies change as economic prosperity brings social and political change. Economic prosperity based on what Paul Krugman, professor of economics at Stanford University, calls "more perspiration than inspiration" will not ensure long-term success for the states of Pacific Asia in the world of service economies. To compete as postmodern economies, they will need to develop cutting-edge innovation, world-class higher education, and first-class management. In a world where effective management of a health care system is more important than harder work in bashing metal in determining profits in the making of cars, the people of Pacific Asia have huge challenges to face. They also have yet to build welfare and pension systems that have helped slow growth rates in the Atlantic world. The demographic curves loom somewhat later for the Pacific Asians, but they cannot be avoided. Nor can the challenges of improving the environment and basic infrastructure.

In short, the people of Pacific Asia have done very well, but they still have mountains to climb. The extent of the challenge, and a guide to the likely outcome, is evident when assessing the prospects of the first Pacific Asia state to succeed, Japan. In the past four years even the British economy has outgrown the Japanese, and Japan now has settled into a pattern of 2-3 per cent growth well known in the Atlantic world. Proponents of Pacific-chic have begun to dismiss Japan as a special case and put their faith in China and the ethnic Chinese world. But herein lies the core of the "optimistic illusion", for the Japan that was once seen as the pacesetter for Pacific Asia is merely signalling to those behind it in economic development that it is an illusion to believe in perpetual rates of high growth. As Bill Emmott noted in the title of a book about Japan in the 1980s, The Sun Also Sets.

Readers may find the above to be very odd coming from the director of the Economic and Social Research Council's Pacific Asia Programme, the largest research programme on the region in the social sciences in Europe. What is the UK government doing spending Pounds 2.3 million over five years on the study of the region? The answer is that we are not offering yet another rehash of the explanations for previous growth, but rather we are attempting to explain the challenges facing Pacific Asia.

A crucial assumption must be that the growth in Pacific Asia is real and enduring. As a result, Europeans face new opportunities for economic, political and social contact. There are markets to be filled, technology to be absorbed and financial flows crucial to our own growth. Pacific Asia provides major opportunities for Europeans with a continuing belief in progress, open markets and political pluralism. Many states in Pacific Asia are also going to be major economic competitors and as a result the structure of our economies and societies will be forced to change. We need to know where the people of Pacific Asia are going to meet the challenges.

As a result, the Pacific Asia Programme is undertaking research across the social sciences. There are the obvious projects about technological innovation in Pacific Asia and the ways European industries are challenged by new manufacturing systems from the East. There are the less obvious, but in some senses more path-breaking studies of how Pacific Asians are facing the challenge of building welfare systems or how they are incorporating ideas about human rights. Until the recent spate of military crises in Pacific Asia, it was considered unfashionable to be assessing the risks of military conflict in the region. The programme has projects about regional conflicts, arms races, and how the likes of China are meeting (or failing to meet) the challenges of interdependence. There are also projects looking at the prospects for good governance and the difficulties encountered when sustained economic liberalism leads, as it inevitably does in states still determined to grow, to political liberalism.

When the then president of the board of trade, Michael Heseltine, launched the Pacific Asia Programme in 1995, and when the governor of Hong Kong, Chris Patten, addressed the programme this month, they spoke of the lessons for the UK from Pacific Asia. Various UK politicians have suggested that Pacific Asia has much to teach us. Tony Blair launched his "stakeholder" debate from Singapore.

Precisely because politicians draw different lessons from the East we should be aware that there are no obvious lessons from a region as diverse and uncertain as Pacific Asia. While there are undoubtedly specific values and policies behind success in Asia, they are not Asian values. These are societies in the midst of rapid change, most of which we have already endured. They have learned the values of the Enlightenment, progress and +open markets from us. They are now learning how to get more growth from inspiration than perspiration. They have yet to find a way to build systems of welfare and care for the environment. They will for some time continue to have their brightest trained in the schools of the Atlantic world.

To list such challenges for Pacific Asia is not just Atlantic hubris. It is a reminder to the people of Pacific Asia that their own hubris can get in the way of their continuing prosperity. Of course, Europeans need to be aware that they have a stake in helping the people of Pacific Asia succeed. We need their markets, technology and finance. Our societies are enriched by cross-fertilisation. But our problem is less one of hubris, and more the opposite failing of selling ourselves short. If we get things right, the next generation may be worrying about the closing of our markets in Pacific Asia. We may have become enriched by the newly industrialising economies of central Europe and we will have been over our demographic hump. At the same time, Pacific Asians will be struggling with how to pay for welfare and pensions at a time of slowing economic growth. They may even be embroiled in military crises with a rising China. Whose century will it be then?

Gerald Segal is senior fellow, International Institute for Strategic Studies, and director, Economic and Social Research Council's Pacific Asia Programme.