The Asian Financial Crisis

Recently we've been overtaken by a turn of events in Asia. I'm curious for your thoughts about the dominoes apparently falling in that region -- Thailand, Indonesia, Korea -- which were perceived as being so strong and in some ways a kind of a threat to the United States. What does this sharp turn in events tell us about globalization and the management of the international economy?

I think we dealt with this in a much smaller and, it turned out, easier to contain fashion in Mexico. It is a kind of defining moment in terms of leadership for the president, because there was very little support in the press, and very little support in the Congress, and very little support in the public for any sort of bail-out of Mexico. What the president understood, and it was really almost instinctive, he didn't need to be convinced, was that U.S. interests, whether they were economic interests or military interests or Tyson with Secretary of the Navy John Dalton democratic interests, were at risk from a destabilized Mexican financial situation, and that it was in the interests of the United States to use its capabilities for leadership and its resources to stabilize that. And I think that's true now.

Japan has been, and I believe it at some point will be again, a serious competitor for the United States. It is in fact still a serious competitor for the United States if you look in particular industries. South Korea was becoming a serious competitor. The recognition of leadership is that you want to have these parts of the world be stable and you want them to be prosperous. Yes, they may pose a competitive threat but you're, on balance, much better off having healthy trading partners than you are having debilitated trading partners. You're much better off if you can spend a couple billion dollars to prevent a debt default in South Korea than if South Korea defaults and you end up having to pick up the bill for work that South Korea was going to do with North Korea for a nuclear reactor. So you have to realize, and I think the president instinctively realizes this, that in the global system in which we now live, we can't distinguish very clearly between our military security, our national security, and our economic security. They're all part of the same system.

The second thing he understands (and I think that Alan Greenspan understands this and that we the economic team understood it in the administration), is that globalization, like almost all other economic forces, has its pluses and its minuses. So the same technologies and the same financial innovations that could pull billions of dollars of capital into South Korea or into Thailand in a couple years would allow that capital to migrate in a couple of days. The volatility of capital markets and the magnitude of their swings have both been increased by the ability of the system to move money around. On the other hand, on the good side, just think of all the investment opportunities, good investment opportunities, that would never have been funded in these countries if the money hadn't been available. Or think about all the Americans who might have wanted to invest in these economies who would not have had the opportunity to do so. So the world is one of imperfection, you have to take the good with the bad. Then you always work to make the good better and control the bad.

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