Where emerging markets are safe
It’s not Asia, says David Frum. He suggests we take another look at Central Europe, where markets aren’t developing at Asia’s exciting breakneck pace, but they are growing steadily... with bonuses like law and accountability.
So much of the US trade momentum is on doing business with Asia. President Bush is in Australia right now for the Asia-Pacific economic summit, but David Frum says America would be wise to look elsewhere.
When Americans think “emerging market,” they think Asia. But if the opportunities in Asia are huge, so too are the risks. Even for those who don’t eat pet food. China does not have rule of law and, despite hundreds of billions of dollars of investment, American corporations still earn less in China than they do in Belgium.
May I suggest that we ought to broaden our definition of an “emerging market” to rediscover Central Europe?
After the heady excitement of liberation in 1989, countries like Poland, Hungary, the Czech Republic and others have settled to the hard, slow work of building the institutions of modern liberal democracy. In many minds, they have settled into a kind of middle tier: not rich like Italy or France, not exciting like China or Indonesia. And institution-building is not very glamorous, but Central Europe has something that much of Asia lacks: law, accountability and democracy.
Incomes per capita in Central Europe now exceed 50% of those in Western Europe. The average Pole enjoys an income of $15,000 — about what the average American had in the middle-1960s. America ranks only fifth among Poland’s investors, but no American doing business in Poland worries that his software will be stolen or his factory expropriated. He doesn’t worry that his local partners will be arbitrarily jailed for failure to bribe the right official. That’s not the same thing as a 9% annual increase in gross domestic product, but over the long run, it may prove a lot more important and a lot more secure.
Business leaders don’t always value democracy abroad. They often prefer the seeming efficiency of growth-minded authoritarians. That’s a big mistake and not just from a moral point of view. Democracy is not only the freest and fairest form of government. It is also the best protection against downside investor risk. (marketplace.org)
David Frum is a former speechwriter for President Bush. He’s now a resident scholar at the American Enterprise Institute. (marketplace.org)
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