Friedman gets it wrong on Japan's role in Asia
Some people may consider Nobel economics laureate Milton Friedman past his time but this columnist does not.
His theme in a recent article published in Business Post was that the International Monetary Fund has been a destabilising factor in Asia because reckless foreign lenders counted on it to protect their loans from the consequences of unwise investment and because it imposed cures for a fiscal crisis on Asia when the region was actually suffering from a banking crisis.
He also reviewed the relative merits of floating and fixed-rate currencies and made the very apt point that, although currency-board systems have a good record of surviving currency crises intact, Hong Kong has adopted central bank features for its currency board and, as a result, is not immune from currency crises originating elsewhere. Did you read it, Mr Yam? But in one area Mr Friedman fell victim to a common wrong perception abroad about the causes of Asia's troubles. He took the view that Japan is the economic lynchpin of Asia and blamed the crisis heavily on Japan.
'Japan is the largest economy in East Asia, the largest importer from and exporter to the smaller East Asian countries, their largest investor and their largest supplier of credit,' he wrote.
Well, not quite, Mr Friedman. Japan undoubtedly has the largest gross domestic product in Asia but it is not a significant force in the trade of the rest of Asia or in most forms of investment here.
The latest figures show exports from the rest of Asia to Japan plummeting by 15 per cent year over year, well below the overall trend in Asian exports.
Japan now takes only 12 per cent of the region's total exports, much of it natural-resource materials rather than manufactured goods, and the figure is dropping fast.
The United States alone takes 21 per cent and Europe 15 per cent, with the figures rising in both cases. The share of other Asian countries outside of Japan is falling but is still a very large 35 per cent. Japan is one of the smaller trading partners.
Similarly, Japan's direct investment in the rest of Asia amounts to less than half of 1 per cent of the GDP of these countries and the recent trend is down. Portfolio investment is even less on a gross basis and on a net basis shows Japanese disinvestment for already more than two years.
Japanese banks have undoubtedly been big lenders in Asia but, where it was true private-sector lending to other Asian entities, these banks acted largely as middlemen for local currency or US dollar capital flows. It wasn't Mrs Takahashi's savings going to Thailand.
None of this should really be surprising. Even more than 50 years after the end of the Pacific War, Japan still cannot bring itself to make a full apology to China for the atrocities Japanese soldiers committed there. It makes a difference to economic relations.
Japan has long imposed cultural isolation on itself and the result has been relative economic isolation as well.
Its fortunes are nowhere near as key to the rest of Asia as Western commentators seem to think.