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Keith W. Rabin, president of KWR International, pondered Asia's continued struggle in The BridgeNews FORUM article, "Asia Knows Inefficient Firms Must Be Allowed To Fail, But Does Asia Have The Will To Let Them Fail?"

"There is no substitute for corporate reform and labor flexibility in Asia," comments Rabin. "Japan has now passed the formerly sacred four percent unemployment rate. Other countries face more serious problems. When pressed, however, few will acknowledge that cleaning up the mess with structural reform and reorganization will inevitably mean higher unemployment."

"The 1997 financial crisis marked a major transformational period for Asia. Faced with a globalizing world economy and the emergence of China as a low-cost export platform, it re-emphasized the need to change business practices. At the time there was lots of talk about the need for the U.S. to remain strong until Asia and Europe could take over as the 'locomotive' for the global economy.

"Today, however, despite congratulatory talk of a V-shaped recovery, Asian opinion-leaders are increasingly nervous. Their worry is compounded by current volatility in U.S. capital markets. Japanese stimulus initiatives have helped to promote consumption, but growing public sector debt, approaching an unprecedented 120% of GDP, does not make this a sustainable solution. Americans are often accused of short-term memories and reminded that it took almost two decades to transform the U.S. from the world's largest debtor to a surplus economy. However, Asia does not have the luxury the U.S. enjoyed of a 20-year reform process. It cannot rely on attrition alone.

"Foreign investors are becoming frustrated over the pace of reform. Only a year ago entities such as the Korea Development Bank spurned Ford's request to lower its planned acquisition price for Daewoo Motors by $1 billion. Today it is proving difficult to find a foreign buyer at any price. Foreign investors are undoubtedly part of the solution; however, they will be increasingly reluctant to purchase Asian assets if they are precluded from employment rationalization by labor, government and social pressures. The bottom line is that to move away from the pitfalls of the recent past, Asia must continue to make changes."

-Keith Rabin with Tamara Bower


Contact Keith W. Rabin at krabin@kwrintl.com