Lost Leaders
The current world economic crisis has its roots in widespread
political failure
By Johanna McGeary
What a telling picture the Moscow summit made. Bill Clinton
looking weary and spent, his head sunk in his hands, his lips
tight in a glum line as reporters badgered him about Monica.
Boris Yeltsin next to him, befuddled and disoriented as he
struggled to link answers coherently to questions. When a
journalist asked whether the Russian President would accept
someone other than Viktor Chernomyrdin as nominee for Prime
Minister, Yeltsin paused for a moment that grew painfully long.
"Well," he finally said, "I must say, we will witness quite a
few events for us to be able to achieve these results. That's
all."
Huh? The scene crystallized fears that the world's top rulers
have lost their direction at a time when leadership is
desperately needed to pull the global economy out of its
tailspin. If confidence lies at the heart of finance, Russia
stands as a metaphor for how much of it has been lost. Instead of
propping each other up at this most surreal of summits, the two
key Presidents seemed to be dragging each other down. Clinton's
lackluster public performance only seemed to emphasize the feeble
condition of his host country. Yeltsin's failing faculties and
crumbling power base reflected badly on the strong backing the
U.S. has given him. At one level, Clinton's tough-love advice to
"play by the rules" of free-market democracy is sound advice, but
it may well be ignored. To citizens around the world anxiously
weighing the turbulent course of events, the summit looked like
Potemkin leadership.
The ill-timed meeting spotlighted how much the financial crisis
rippling around the world is not simply an economic breakdown but
a political one as well. Russia was exposed as a country with no
government and no plan for recovery. The massive dislocations in
country after country lay in the mismanagement or malfeasance of
top political and business figures, and the difficulty the world
is having in repairing the damage owes much to a set of leaders
who are weak, venal or tarnished.
The sweep of the political breakdown is astonishing. In
Thailand, where the disintegration of the baht one year ago set
off the tidal wave, the Prime Minister presided over a
spectacularly corrupt regime. General Chavalit Yongchaiyudh, a
former army chief turned politician, wasted billions propping up
ailing finance companies owned by political cronies. When the
currency crumbled under the pressure, he chose to throw good
money after bad in a futile attempt to avoid a humiliating
devaluation.
Malaysia's cantankerous, 72-year-old Premier Mahathir Mohamad,
strongman for 17 years, ran a one-man show with total control
over the country's economic machinery. In his obsessive search
for respect from the West, he spent lavishly to build the biggest
and the tallest--the world's tallest skyscraper, the highest
flagpole, the tallest control tower--wasting the foreign
investment that streamed eagerly in.
When the country's currency and stock market came crashing down
of its own weight, Mahathir blamed outsiders--a cabal of
speculators, Jews and enemies of the developing world. To
replenish the treasury, he asked the rich to pawn their jewelry
overseas and bring the money back to Malaysia. To cut a huge
foreign bill for food, he asked people to plant vegetables in
their front yards. Last week Mahathir took the bold step backward
of withdrawing Malaysia from the global economy, sealing off its
currency from outside trade and sacking the pro-market Finance
Minister. Absurdly, he also found time to attempt a world record
by leading 1,998 Malaysian-made cars in the world's longest
convoy.
Indonesia too continued to receive billions in foreign cash
despite years of the most egregious corruption and nepotism
sanctioned by President Suharto. Apologists argued that funneling
contracts to his children did not matter too much since the
projects--new roads, factories, airports--did get built. If they
cost more than they should have, the projects still contributed
to annual economic growth of more than 6.5% for 25 years. When
the "corruption surcharge" helped destroy the rupiah and
emergency austerity measures threatened to starve a population
where almost 50% are now on or below the poverty line, riots
drove Suharto from office. In his place came the eccentric B.J.
Habibie, who may have good intentions but probably lacks the
popular support to translate them into reforms. "Indonesia," says
Miranda Goeltom, a director of the central bank, "is no longer
ruled by one man who can determine everything."
These leaders were guilty as well of believing there was
something unique about Asia's economic growth: that it would
continue unabated regardless of leadership or official policy.
That myth was perfected in Japan, where the entire ruling system
was set up to avoid the necessity of any single person's taking
responsibility for anything. The country's clan politics worked
well enough when there were sufficient spoils to spread around.
But when trouble loomed, there was no mechanism to produce a
leader capable of making difficult decisions in the national
interest.
Japan's crisis, perhaps the root cause of today's economic
turmoil, occurred in slow motion, giving plenty of time for its
leaders to step in with the hard but manageable changes required
to forestall full-scale recession. Over eight years, land prices
crashed and then stock prices, and then the entire banking
system threatened to cave in. But the country's politicians and
bureaucrats repeatedly buried their heads in vain hopes that the
problems would just go away. Having let its own ailments fester
for years, Japan was in no position, despite its wealth, to help
when its neighbors began to crumble.
At a minimum, Asians expected Japan to contribute by setting its
own economic house in order. So far, it hasn't. Japan's leaders
still show no stomach for revamping their financial system and
slashing regulations that coddle business. No one has shown the
interest or strength to break the money links between inefficient
industries and the ruling party. Party politics and bureaucratic
inertia ground down the reformist plans of the last Prime
Minister, and he has been replaced by a cookie-cutter party man
with what a Tokyo commentator called "all the pizazz of cold
pizza."
It is hardly surprising that Russia should be hardest hit of all.
Its leaders have been in place for only seven years, but in that
time they have failed utterly to create viable institutions of
power. Under Yeltsin, Russia acquired the trappings of a
civilized state: an office of the President, a federal
parliament, private banks. But they only looked authentic. The
presidency resembled the throne of the Czar, upon which the
entire welfare of the nation rested. But the erratic Yeltsin is
physically and politically out of touch, having lost control of
his Cabinet, the parliament and the people. The Duma, supposedly
a representative legislature, is hardly that at all. Except for
the Communists, Russia has no real political parties, so most of
the Deputies vie for power rather than enacting the laws Russia
needs. The banks have served all too often as the private
preserves of robber barons.
The more the sick nations grasp the failures of their own
leaders, the more they long for some outsider to set things
right. Fairly or not, the burden of leadership ultimately falls
on the U.S. Clinton ought to be the reassurer of last resort, but
he is distracted by the Lewinsky scandal, and many are concerned
that his personal stature and moral authority are seeping away.
His attention to foreign affairs has always been intermittent but
surely diminishes the more time he must spend with his lawyers.
Clinton has been a good student of international economics,
grasping the inexorable forces that are changing the shape of the
world day by day. Some critics fault him for settling for a
country-by-country approach instead of trying to build a new
world economic architecture. In any case, that policy is
foundering as weak governments fail to give the markets what they
demand.
More ominously, the much heralded march of market economies and
democratization is stalling. Russia is tempted to return to a
command economy and strongman rule. The authoritarian impulses
of leaders like Malaysia's Mahathir are showing the ugly side of
the "Asian values" that were touted as a ticket to prosperity
and order. Instead of standing tall, the world's leaders seem
hunkered down, adopting timid defensive measures rather than the
forceful steps each nation needs. In every country there are
very difficult domestic politics that confine leaders, and
globalization surely makes life more difficult for
statesmanship. To some extent there is an inescapable logic
built into the phenomenon: you cannot have both laissez-faire
and command-control; you cannot say leaders should get out of
the way of the economy, then whistle them back to fix things
when there's trouble. Yet in the end, trust and confidence can
be at least as important as monetary policy or banking reforms,
and those, surely, are well within the job definition of a
leader.
--Reported by Jay Branegan with Clinton, Donald
Macintyre/Tokyo, Terry McCarthy/Hong Kong and Yuri
Zarakhovich/Moscow
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