An Interpretation of the Asian Financial Crisis: Innovation Systems and Economic Performance in a Period of Transformation

Abstract

S ince World War II, Asia Pacific has been the world's fastest growing region. In a work typical of the 1990s, Samuel P. Huntington hinted that countries of the Asia Pacific might have discovered regimes more efficient and rational than those of the West. Rapid economic growth might lead to Asia eventually challenging the West (Huntington 1996, 303, 309). Half a decade later this fear seems to belong to a distant past. The West has fended off not only the threat of communism (1989) but also the economic and political challenge of Asia Pacific (1997). But for several decades, the growth of Asia Pacific was unprecedented, flying in the face of studies emphasizing openness, democratic institutions, the rule of law, and a civil society as causing longterm growth. Instead, Asia Pacific was blatantly authoritarian, with economies containing strong elements of state planning and intervention, no apparent civil society, and with opaque, informal, quasi-contractual arrangements characterizing the interaction between key state and business actors. The 1997 Asian financial crisis has, if not necessarily vindicated the skeptics, at least made Asia Pacific appear less of a mystery. In this article, I will not argue against orthodox (and well-established) explanations for the crisis; this was a currency crisis. An extreme reversal of capital flows (following massive inflows) brought already weak and vulnerable financial systems to a collapse. But if we are satisfied with the above, and with phrases such as contagion or interdependent