Economic Cooperation In The Asia-pacific Region

John P Hardt

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429714368
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Asian Politics
• Index: Politics & International Relations

The Asia-Pacific region has, in the eyes of most observers, the potential to become the engine of global economic growth in the 21st century. Whether it does will largely depend upon the willingness of the region's nations to pursue economic co-operation and peaceful reconciliation of differences. In this volume, scholars, policy experts, and repre

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Soviet Global Integration Prospects

John P. Hardt

Global Trends and the Asia-Pacific Basin

Regionalism and the Liberal Global Regime

The increasing popularity of the concepts of globalism and the liberal commercial regime and the emphasis on development investment over defense allocations provides a favorable climate for increased efficiency and competitiveness, commerce and growth. This increasing acceptance in principle of developing a global economy based on universally accepted principles of openness and competition rekindles the spirit of those who projected a liberal world economic order to grow from the ashes of World War II. This new international economic order was to be an open, universal system that allowed for the development of a growing yet stable global economy that would assure improved living standards and reduce the prospects of conflict. Prosperity and peace were set out as the twin visions for the postwar world—visions that have largely been sustained through the 1980s.

The United States and Japan are likely to continue to dominate the commerce and investment of the Asia-Pacific region. Each has apprehensions about the future. A fear of the United States is that without changes in the factors leading to the trade deficit, Japan might own and control too large a share of U.S. assets by the end of the century. A Japanese concern is that external pressure to force open the Japanese markets in agriculture and other sectors too quickly might create strong negative political reactions in their country.

While reduction in the U.S. domestic deficit would help reduce U.S. current assets and merchandise trade deficits, as would a flexible exchange rate policy, and more resources to raise domestic investment and productivity could help raise the competitive position of the United States in Asian markets, without these favorable developments pressures working against a liberal regime may mount. A shift in domestic policies in Japan and the Asian Newly Industrializing Countries (NICs) toward domestic priorities, such as housing and a further reduction in institutional barriers to domestic markets, would further liberalize trade.

U.S. attention to the debt reduction problem in developing countries would also be essential to preserving liberal markets. Foreign aid and cooperation in addressing the debt issue is one of the top priorities in current Japanese economic policies. In 1988, Japan's official development aid passed the $10 billion level, exceeding the $8.8 billion of the United States. This made Japan the world's largest source of official development aid. A comprehensive conception and implementation of the Brady Plan, with Japan and the World Bank playing key roles, is another indication that U.S. economic hegemony is waning and roles are changing.

Japan and the Newly Industrializing Countries of Asia might be especially helpful in encouraging the integration of the People's Republic of China and Soviet Siberian regions into the rules-based multilateral economic system. All Western countries, especially the United States and Japan, may facilitate this integration in a global context, with regional affiliations reinforcing rather than countervailing global openness.

Soviet Domestic Reform Economies and Integration into the World Economy

While the West can take significant steps toward facilitating the integration of the Soviet Union into the global economy, the primary precondition for successful integration is domestic economic reform in the Soviet Union. Especially pertinent are the issues involving monetization in order to create a domestic market system and reduction of defense spending to facilitate modernization and political acceptance into the Western system. Without successful market-oriented reforms to cope with pressing problems of monetary overhang and extreme weakness in necessary economic infrastructures, and without effective steps toward relief of hard currency shortages and progress toward convertibility, effective integration is not likely. Market-driven economies at home are a precondition for effective integration of socialist economies into the global market system.¹

Price reform, scheduled to begin in the early 1990s, is a process whereby prices that were formerly set by administrative procedures are allowed to "float freely" as determined by the market forces of supply and demand. The implications of price reform are substantial: Consumer and wholesale price reform would essentially create a market-oriented, decentralized economy. Specifically, implementation of price reform would lay the foundation for guidance planning; economic decision making based on objective criteria (e.g., efficiency, rate of return, and comparative advantage); competitive performance standards; mechanisms of accountability; a freely convertible, exchange rate; and a rational tariff structure. Still, price reform presents policymakers with an inherent dilemma: While it is an absolute precondition for monetization and decentralization of the economy, it carries with it high short-term costs. Undertaking price reform in an economy like the Soviet Union with excess demand and heavily subsidized consumer sectors, the leadership faces unbridled inflation and negative social consequences.² Questions of equity—particularly for those workers on regular salaries whose living standard will fall rapidly as consumer prices increase—have left doubts as to the best way to proceed with consumer price reform, further delaying price reform until after 1991.

Dealing with the excess purchasing power in the system—that is, the monetary overhang—is clearly the first-order problem facing Soviet policymakers. Minister of Finance Boris Gostev³ proposed the following strategy for dealing with the acknowledged 100 billion-ruble overhang:

1. Discipline the economic mechanism by tying wages to productivity and requiring enterprises to end deficits. Wages rose last year by 12 percent, productivity by 5 percent; one out of ten enterprises had a deficit. The "hard budget constraint" restricts loans to failing enterprises in order to end the "evil of freeloading."
2. Increase revenues by placing additional taxes on incomes and profits, especially the "unearned incomes" of some cooperatives. Also, sharply reduce capital investments and cut defense spending by 14 percent.
3. Absorb purchasing power through a 12 billion-ruble increase in domestic production of consumer goods, including some imports, and reduce supplies to nonmarket consumers (a euphemism for cutting special privileges to members of the party and government bureaucracy).
4. Increase savings and personal investments through the sale of housing and property claims on farms, enterprises, and cooperatives.

Nikolai Shmelev, who estimates a much larger overhang, would reverse alcoholic prohibition and instead introduce a heavy tax abstinence policy and import on credit of up to $15 billion worth of consumer goods in one year and $3.5 billion on a continuing basis.

The defense "burden" issue⁴ came to the public agenda in 1988 with critical discussion of defense spending; conversion of military industrial plants; the necessity of the current military draft; and a public debate on allocation issues. The primacy-of-defense claim has been politically challenged and the burden of defense generally acknowledged. Instead, investment for civilian restructuring over military programs would place perestroika in conflict with the more traditional view of the requirements of military security. In 1989, for the first time in Soviet planning history, the "guns versus butter" argument appears to be moving in favor of butter. So far, several proposals have been advanced to commission new plant and equipment for modernizing industry and agriculture; to delay new resource allocation for upgrading models of tanks, aircraft, and artillery; to reduce the draft of eighteen-year-olds for military service and instead release them to pursue advanced education or to become gainfully employed in the industrial or agricultural labor force. New military force planning may shift from offensive to defensive capabilities requiring smaller forces and fewer officers. Reduced foreign policy roles for military sales and aid may require less military production and claims on hardware inventories.

Nevertheless, the last Soviet leader to challenge the military budget, Nikita S. Khrushchev, was widely opposed by the military and was eventually removed from power. The Soviet reformers must therefore find the "proper" balance; they must prove the validity of reform to the average Soviet citizen by showing positive results without losing the military bureaucracy to reactionary forces.

Shifting to market forces in management and incomes policy is a daunting task in any centrally controlled economy.⁵ Proceeding directly to consumer price reform, say in the early 1990s, would create high short-term economic and political costs. Perhaps the most critical initial requirement is to manage demand by bringing the money supply into line with the supply of goods and services. While all elements of fiscal policy may be employed to reduce monetary overhang, improvement in the quality of goods supplied, together with rising real income for the productive workers, may allow for the inevitable increase in prices without the consequences of severe austerity.

The labor surplus created by improving productivity in the service sector could be redirected into new cooperatives. This policy could provide significant short-term improvements in the quality of life. The growing attention given to cooperatives suggests their important role not only in improving the quality of life but also in creating jobs. Thus, hundreds of thousands of cooperatives formed in 1987-1988 have served the dual role of providing more products and services for the population and providing a new source of productive employment. Still, in response to the official perception that cooperatives have led to "unearned" price increases (despite improved services and products), a sharp control of activities and profits of cooperatives was set down in December 1988, and a new regulatory decree on cooperatives has dampened the development of cooperatives in 1990.

Intervention by the center represents a major setback in progress toward reform: As long as members of the old bureaucracy trained in the thinking and decision making associated with central planning continue to intervene, local decision makers may continue to base decisions more on the interests of government bureaucrats and less on market forces. In addition, private producers, without the benefits of being inside the "old system," may find it very difficult to compete on an uneven playing field. Eventually reform begins to be suffocated at its root—the enterprise. These dynamics effectively undermine newly implemented reform measures, bolstering instead the very structure meant to be transformed.

Step-by-step approaches may be critical to minimizing the highly negative social consequences of price reform and avoiding the inflation/intervention cycle. Transition toward market forces could take place through the use of short- and medium-term strategies. In the short term, any shift in prices alone might result in overt or concealed inflation; only an increase in supply may dampen the wage-price pressure and cushion the impact of reductions in income that would result from increasing sensitive prices such as meat and rent. In the interim, effective incentive systems may bring about an increased availability of "hard goods" such as quality food products, home appliances, and services. Output in agriculture may be less an obstacle to improving food supplies than the infrastructure that "preserves the harvest and crop" from field to table. Thus, direct attention to losses in quality and volume in harvesting and transport may lead to substantial improvements where it counts—on the consumer's table.⁶

A transitional phase during which a "simulated market" was created would allow price ranges to be created for goods, which would lead toward a rational price structure but would also meet the political and equity concerns of the leadership. Movement of producer and consumer goods toward market clearing levels would both provide useful price indicators for management and restrict the role of the second economy. For example, both housing and meat are currently heavily subsidized. During the transitional period, higher relative price ranges could be set for housing and goods production, which would eventually stabilize at a market clearing price. The point would be to move in the direction of a rational price structure in steps.

During the transitional period, before a fully rational price structure is established and objective criteria for policy-making set forth, problems of inefficiency, corruption, and inflation will most likely persist. These negative aspects of a staged approach may, however, be mitigated by a strong emphasis on increasing supply—through growth of both social and private production. This approach would help to keep down the worst aspects of inflation and may broaden the influence of the market and weaken the control of central bureaucratic managers. While Western economists agree that it is only through comprehensive price reform that other aspects of reform can be successful, political economists might be more inclined to emphasize the transitional approach, taking into account the short-term politico-economic benefits of maintaining a staged approach.

Other countries share with Soviet leaders the desire to avert the negative social consequences of inflationary pressure. In the initial stages of the transition, Soviet efforts to produce rising real income through an increase in the quantity of agricultural products may draw on Western experience in managing the farm-to-market food system and service industries. Development of cooperatives, coupled with investment in the farm-to-market infrastructure, which would facilitate marketing from cooperatives and family units as well as state and collective farms, would promote an increase in real income. The United States, the Scandinavian countries, and Western Europe have developed experience in agricultural cooperatives, as Lenin was aware when he wrote his famous article on cooperatives, referred to in the seventieth anniversary speech of General Secretary Mikhail S. Gorbachev. Western techniques regarding food storage, transportation, and processing of perishable products, if successfully adopted by the Soviet Union, and marketing techniques in Western economies, such as in the United States and the European Community, are especially relevant for Soviet economists and businesspeople.

Interdependence entails the establishment of an effective interrelationship between domestic and foreign markets whereby external economic relations are based on calculations of comparative advantage rather than ideology. Gorbachev's conception of interdependence and globalism appear to go far beyond the strictly economic; it embraces the political as it bears on arms control, the environment, the sharing of world resources, problems in over-population—in brief, a whole range of interaction in our experience today.⁷

Soviet New Thinking and the Reasonable Sufficiency Security Policy

The application of the New Thinking to regional issues has led to the withdrawal of Soviet troops from Afghanistan, a cease-fire in the Persian Gulf, and new withdrawal negotiations ...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Acknowledgments
• Introduction
• 1 Soviet Global Integration Prospects
• 2 Japan's Role in Asia-Pacific Cooperation: Dimensions, Prospects, and Problems
• 3 Asia-Pacific Economic Cooperation and U.S.-Japan Relations
• 4 Trade, Policy, and Korea-U.S. Relations
• 5 Korea's Perspectives on Asia-Pacific Economic Cooperation
• 6 China and Asia-Pacific Economic Cooperation
• 7 Economic Cooperation in the Asia-Pacific Region: The Southeast Asia Dimension
• 8 Taiwan's Future Role in International and Regional Economic Cooperation
• 9 The Future Role of Hong Kong in the International and Regional Economy
• 10 U.S. Economic Policy in a World of Regional Trading Blocs
• 11 Technology Transfer in the Pacific Basin: Issues and Policies
• 12 The European Community: A Looming Challenge
• About the Editors and Contributors
• Index