The Fed’s Philosopher-King Flubs on the Asian Quagmire

These are undoubtedly sad days for Bill Clinton’s increasingly frail presidency, but at least he’s trying to say the right things about the world’s ever more shaky economy. On Sept. 14 in New York he gave a subdued but excellent speech, cynically viewed, unfortunately, by domestic critics who viewed it as an effort to divert attention from mounting problems concerning the Lewinsky matter. That was bad enough. But who would have thought he’d be blindsided by the internationally respected chairman of the U.S. Federal Reserve Board?

Alan Greenspan, of scholarly mien, tends to operate on that elevated plane reserved by the ancient sage Plato for philosopher-kings. No one could disagree that the top levels of government need more like him. But even the greatest have their off-days, which is what happened last week when Greenspan testified before Congress. It could have been a true magic moment when his soothing words calmed down roiling markets and mended frayed nerves. But just 48 hours after a thoroughly beleaguered President Clinton somehow summoned up the energy and focus to raise the world’s hopes with a speech calling for broadly coordinated policies, including interest-rate reductions by the West to re-energize downtrodden world economies, the Fed chairman dashed cold water on the proposal--and offered surprisingly sharp criticisms of Asia.

Greenspan told Congress that the developed countries of the West were not endeavoring to coordinate any interest-rate decline and implied that such Fed action would occur only if it were in the immediate economic interest of the U.S.: “Our actions must be focused at the end of the day on the American economy,” he intoned. Let’s hope no one noticed this narrow, nationalistic standard in Tokyo, which has been repeatedly admonished by Washington to reform its economy in order to ease Asia’s recession.

While he was at it, Greenspan knocked some Asian governments. He heaped scorn on Hong Kong for buying stock to prop up its market against speculators: “They won’t succeed,” he sourly predicted. He scoffed, too, at Malaysia’s tough new currency controls as if they were little more than a way of avoiding obligations and economic reform.

Asia is listening carefully, but doesn’t like what it hears. On Thursday, at a timely luncheon organized by the Asia Society Southern California Center in Los Angeles, Malaysia’s Foreign Minister Abdullah Ahmad Badawi snapped back: “We must insulate ourselves against speculation that can damage the national economy. This is our country, our people, our unemployment. We can’t count on outsiders to help. In a crisis, we can’t go by the old books. And this is a crisis.”

Hong Kong’s leaders were, in the words of Chief Monetary Executive Joseph Yam, “surprised and indeed somewhat hurt” by Greenspan’s critique. And, during a conference last week at USC’s Annenberg School for Communication, Henry Tang, chairman of the Federation of Hong Kong Industries, defended his government and wondered why Greenspan seemed so eager to dash hopes for a coordinated Western approach to lower interest rates: “The world looks to the U.S. for leadership. To say what Greenspan said to Congress, after the president has suggested just such a move, is very irresponsible.”

Asian leaders are well aware that Greenspan doesn’t work directly for the president. But the Fed chief’s comments are worrisome if they in any way reflect condescension toward Asia--and an irritation and impatience that is both unjustified and counterproductive. Even at today’s recessionary levels, East Asia economically is far ahead of where it was just 10 years ago. It is now a full member of the international community, not some provincial colonial outpost.

And Asia is not alone in the development of doubt about the wisdom of unregulated movement of global capital across national borders. New worries have come from such major U.S. scholars as Columbia University’s Jagdish Bhagwati and MIT’s Paul Krugman (one of the few who years ago foreshadowed Asia’s current crisis). Indeed, even George Soros, whose investment practices have been blamed for fomenting Asia’s troubles, is worried. The contrite but ever-wealthier international financier said: “Instead of acting like a pendulum, financial markets have recently acted like a wrecking ball, knocking over one economy after another. There is an urgent need to rethink and reform the global capitalist system.” Britain’s astute prime minister, Tony Blair, speaking at the New York Stock Exchange on Monday, agreed: “We should not be afraid to think radically and fundamentally.”

America will only isolate itself, even in this hour of its economic ascendance, if it continues to talk down to Asia and other developing regions, in what is clearly their time for downturn. Greenspan is a fine man and a dedicated public servant. But last week’s foray into international relations missed some important tonalities. To lecture and to contradict is to misunderstand and to alienate.

Clinton’s more empathetic approach to Asia, as illustrated in the prior week’s speech, in his remarks Monday at New York University about the dark side of international capital flows and in his worthwhile efforts of his second term to develop better relations with Asia, is far more preferable. It might even be called presidential--if we had a fully functioning presidency.