Origin of the Integration Thought - Essay Example

Lecturer Introduction: Origin of the Integration Thought The idea of integrating the East Asian economy is an old one. It started in the 19th with many calls for Asians to form independent trading areas of their own, rather than be confined in arrangements the relegated them mere spectators in the way that things were run. They wanted to stop being dictated upon as was the case in the days of colonialism. There was the need to form trading blocks that they would have total control over (Grimes, 2011: 296). People have been quoted as protesting against the United States hegemonic style of handling relations with other countries. For example: Carl Johannes Fuchs (Fuchs, 1905) ‘‘The likelihood that Asian countries will be divided and ruled by the West or frequently hit by crisis seems quite high . . . If East Asia does not want to be divided and ruled as in the colonial days and in the more recent past . . ., we (Asians) need to form some types of regional cooperation of our own . . . Let’s have (a) common agenda rather than continuing to be divided and ruled.’’ Eisuke Sakakibara (Sakakibara, 2001) ‘‘Asian countries should band together with each other – and at times take joint action with Europe as well – to deal with the United States’ occasional bursts of irrationality, such as unilateral measures in handling trade disputes and its response to currency crisis.’’ Munakata Naoko (Naoko, 2002) ‘‘We in East Asia are the most dependent region in the world on world trade and economic development. Yet we are without voice and without clout. The decisions that directly determine our present and dictate our future are made elsewhere. It is time for us to empower ourselves for the good of our people and for the sake of our future and the future of the world.’’ Mahathir bin Mohamad (Naoko, 2002) ‘‘The US must learn to act more like a partner and less like a hegemon: it must learn to genuinely consult rather than offering allies a stark choice (if even that)’’ What are the drivers of financial development in the region? The United States has been a dominant player in the economy of the Asian continent for nearly half a century. Many countries remained allied to the United States and could never predict the disaster that awaited their continued economic alliances with America. Japan had been the Asian economic giant for the past several years and dictated the direction to be taken by other countries on the Asian continent as far as the economic alliances were concerned (Grimes, 2011: 294). Since Japan chose to cooperate with the West on economic issues, most of the other countries had no choice but to follow footsteps of Japan and therefore also decided to get allied to United States of America economically. It had been predicted a number of times in the 1980s that American influence in the region and other parts of the world would one day come down crumbling and other economic giants would rise and sweep across the regions with fresher and more reassuring economic ideologies. It was a disaster in waiting and the 2008 global economic crisis was there to show for it. It led to the rise of China as the new economic powerhouse. Things changed greatly across the Asian region, and alignments started to take place around China. There was a realization of the need of economic integration in East Asia. How important are the Asian & Global financial crises for understanding financial cooperation in the region? East Asia integration attempts were inspired first by the Asian economic crisis of the late 90s and whose effects lasted up to the early 2000s. The economy of the region almost went to its knee. This awakened the East Asian nations to the fact that they needed an internal system to try to avert future crises. The need for economic integration in the region was born. Then the world was to later on see the 2008 global credit crunch that started in the United States. The realization among some countries, inspired by the China arguments, was that they needed not trust US ties fully; that they needed a plan B, just in case another crisis was to strike in future. Power is shifting at a very fast pace and new forms of economic regionalism are taking shape. The 2008 crisis was the most severe economic disaster since the great depression days in 1929-1932. It hit many more countries than did the great depression because virtually all the nations of the world were industrializing or already industrialized at the time the crisis started. It all started in the United States and its effects have gone completely; not many economies have recovered from it. This underscored the need not to rely on the United States on all the economic issues as had been the case many years before. Today in Asia, there is the shift of alliance from the American inspired liberal capitalism which proved to be potentially disastrous to other fresher ideas that China was coming up with. Many countries started to build their economies around China. The rise of china was accompanied by perceived new agendas, principles and logics that were thought to be perfect for the reorganization of the regional order. China’s economic influence is fast spreading, but the American influence in East Asia still remains unsurpassed (Ogawa and Chikafumi, 2014). Economic and trade ties are drawing East Asian countries closer to china but the overall balance of political and economic power remains complex. This is especially so because much as most of countries in the region have continued to pursue a mix of policies entailing both hedging against and engaging the fast rising china. There have been skeptics who do not want to see the American hegemonic leadership disappear. The2008/2009 crisis poked holes in the way the East Asian economies were run and the ideas they were based on. It exposed their vulnerabilities in case an economic disaster was to strike in America. They also realized that there was an inadequacy of mechanisms for handling such huge economic crises as the 2008/09 whenever they struck. The IMF facilities were not large enough to address the foreign exchange issues that the economies had to grapple with. Nations couldn’t agree on how to pull together a harder currency for lending to them. There was the skewed manner in which the bailout funds were negotiated, based on similarly skewed terms, among the IMF states and the international development banks, and this called for the East Asian states to seek institutionalized means of handling similar crises if they were to recur in future. In this view, Japan drew up a plan that called for a regional fund to be distributed to the countries within the region without harsher and prohibiting conditions. The IMF and the United States were opposed to this plan ostensibly because it would create a moral hazard. China too was against, all because it perceived as a ploy by Japan to grab the economic power in the region. It was difficult to initiate and foster an East Asian economic integration because of the manifest suspicions that existed among the leading economies in the region, especially between Japan and China. Therefore the United States still largely got its influence going on. After the Asian crisis of the late 90s that was greatly blamed on the inability of the Beijing consensus to cushion the East Asian nation from its adverse effects, China also got the chance to fault the Washington consensus to avoid the 2008/09 global economic crisis (Ogawa and Chikafumi, 2014). China has spoken against the United States and its policies on a number of issues. It says that as opposed to the United States that never gives voice to the developing economies to express their views, china is a generous country that allows advantage to the smaller nations to speak on some of the issues the pertinent to their small economies. It also says that the stringent conditions imposed by the world bank and the IMF have destroyed many economies around the world including Argentina and Indonesia; and all this is thanks to the Washington consensus combined with the modern financial industry. It goes on to assert that on the contrary, China never attaches conditions to the financial aids given to the developing nations and never interferes in their domestic political and economic processes. Many nations however still think that there is need to rethink the Beijing consensus before it can be binding to them or even gain absolute support among the people of China. This is another thing that slows down the pace of economic integration among the countries in East Asia. Many nations do not seem to trust Chinese policies from face value, which makes it hard for China to have total control over their economies. There had been sharp differences in opinion among the nations of East Asia on how finance relates to development. We had liberalists and interventionists holding clashing opinions on how finance links with development. The Asian crisis of the late 90s and the early 2000s led to a convergence of opinions with the Asian financial policy elites and the liberalizers both agreeing that there was need to build institutional frameworks to accommodate investment rather than liberalizing the financial markets. These measures have sought to expand the capital markets and also create a more market oriented and liberal mode of economic governance. These changes have taken place majorly in East and South East Asia. There have been campaigns by china to have its national currency, the Yuan or Renmibi, to be used as an international currency and to oust the dollar. It is undeniable that the global economy is so dollarized that ousting the dollar might just prove fruitless. There has been an increase in regional monetary cooperation since the Asian crisis, and there is the possibility of making the Asian currency a permanent regional currency in East Asia. This is particularly due to the vulnerability of the dollar when big economic crises hit the globe. Do we see a convergence of domestic financial architectures? No, why? Despite all these attempts to form their own regional block, there have been a number of issues that have slowed down the integration of East Asia. The region contains some three economic giants, being China, Japan and South Korea. Suspicion among these three nations has led to what can only be called ‘partial integration’ (Rethel, 2010 508). These three nations are all highly industrialized and want to have control of the trading blocking once it is formed, delinking the east Asian region from the American economic ideologies. Japan and South Korea are not some of the best critics of the United States of America. They still cooperate with the US on a number of issues. South Korea for instance cooperates with the United States on military matters and wouldn’t want to jeopardize that by alienating it in matters of international trade. Japan too is a close ally of the United States. This makes the East Asian integration a difficult affair and a very tricky balance. What this means is that we cannot have an absolute economic integration in East Asia with Japan and china being part of it. This is especially so because even in that part of Asia alone, there are countries allied to china, and others to Japan and South Korea. Those that are allied to South Korea and Japan don’t trust the motives of Chinese favors (Cohen, 2012 365). They believe that china is selfish on aid matters and are always determined to reap big from it, and they give aid and loans on very stringent grounds. Mistrust is what we call such, and it has greatly hampered the integration attempts. The future looks bleak for integration of East Asia if such suspicions won’t cease. It is believed that they have a valid case in seeking to integrate, but not much trust has been cultivated. Apart from the economic issues, the United States is thought by some of the countries in East Asia as the only country in the world that would volunteer its forces to help other nations respond to external aggression (Rethel, 2010 498). It helps with military and financial support. There is concern among such countries that in the event that they are seen to be leaning towards China on economic issues, they are bound to lose favor with the united states on a range of issues that determine their economic growth such as war and terror. It would never be possible to completely do without the support of the world’s biggest economy. This is what results into partial integration that mixes the ideas of both the eastern and the western economic blocks. It would be realized that financial markets in East Asia are integrated more with the global one than amongst themselves. Another finding is that the extent of regional financial integration lags the degree of real integration in East Asia. It is doubted if the Asian regional integration can move forward successfully from real to monetary and financial integration as was the case with European integration. The lack of success in completely integrating East Asia is attributed to wide diversity of Asia’s economic development, political interest and lack of formal institutional arrangements. Since the Asian crisis, the East Asian economies have had major financial cooperation initiatives which include the development of bond markets based on the local currency, policy dialogue and the economic review and the regional reserve pooling arrangement (Cohen, 2012 368-370). In order to strengthen and enhance regional financial integration and development, the financial cooperation efforts must be intensified. Bibliography Cohen, B. J. (2012) ‘The Yuan Tomorrow? Evaluating China’s Currency Internationalization Strategy’, New Political Economy 17(3), pp. 361-371 Grimes, W. (2011) ‘The future of regional liquidity arrangements in East Asia: lessons from the global financial crisis’, Pacific Review 24(3), pp. 291-310 Fuchs, J.C. (1905) The Trade Policy of Great Britain and Her Colonies Since 1860. Macmillan and Co. (pp 272-274) Naoko, M. (2002) The Challenge Of East Asian Economic Integration. Tokyo. Japan Echo. Pp. 8-13 Rethel, L. (2010) ‘The New Financial Development Paradigm and Asian Bond Markets’, New Political Economy 15(4), pp. 493-517 Ogawa, E. and Chikafumi N. (2014), Asian Currencies in the Global Imbalance and Global Financial Crisis, Chapter 23 in Inderjit Kaur and Nirvikar Singh (eds.), The Oxford Handbook of the Economics of the Pacific Rim, forthcoming, New York: Oxford University Press. Shakakibara, E. (2001) The Asian Monetary Fund-Where Do We Go From Here: In Proceedings Of The International Conference On Globalization. Kuala Lumpur; Institute of Strategic and International Studies. Pp. 5, 6. Read More