Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

Asian Values Hurt Asian Markets

Written by johnleemk on 8:51:58 am Mar 23, 2007.

Economists are normally reluctant to attribute outcomes to simple cultural issues. The way an economist thinks is that every human being is essentially the same — they respond to incentives. One up-and-coming American economist, Emily Oster, has made a very persuasive argument that AIDS is prevalent in Africa not because of culture, but because of poverty.

Oster has written that economist "believe circumstances, not culture, drive people's decisions". What I wonder, though, is whether culture can be truly separated and treated distinctly from circumstances.

After all, a particular culture often develops because of social pressure — circumstances — that creates an incentive for people to conform to established societal norms.

"Asian values" are one notorious example of a case where culture has clearly played a major role in the economy. Business relationships that would be considered corrupt and nepotic in the West are considered business as usual in Japan and Korea.

And, of course, few can forget the stereotype of Asians as knee-bending, subservient and deferent slaves to authority figures. One satirical civics textbook authored by the "journalists" of an American parody show translates "Western values" into "Asian values" as such:

Individualism becomes group consensus.
Multiparty debate becomes respectful silence.
Free speech rights become respectful silence.
Independent investigative media become respectful silence.

It is for this very reason that the societies and polities of many Asian countries are plagued with the problems of corruption, poorly-protected democracies, and so forth. I think economists who combine economics with sociology (as Oster does) would be hard-pressed to find any other explanation for this state of things than culture.

In a sense, though, they are correct. Asians are motivated by incentives, just as anyone else is. The trouble is, our society's ingrained incentives are negative ones of social pressure — to conform, to not question, to obey. Private grumbling is fine, but publicly, there is only one acceptable point of view (and this viewpoint is invariably that of the fellow with power).

I submit that when viewed in this light, it is easy to see how capitalism has been corrupted by Asian countries. In a market society, consumers and producers have equally important roles to play. If anything, as evinced by the term "consumer sovereignty", consumers are viewed as having the greater power to influence things than firms.

Asian countries, however, have implemented a dysfunctional market system because of their deferential cultures. Firms naturally have the upper hand in the sense that their organisation gives them the appearance of some form of authority, especially as opposed to the little consumer.

In Western society, with its strong traditions of individualist and liberal thought, consumers would not take any infringement of what they perceive to be their rights. If they are treated poorly, if they are given goods of inferior quality, they do not keep a "respectful silence". They protest.

Asian society, on the other hand, has always valued "group consensus" and going with the flow. Open disagreement is seen as a means of "losing face", and as such is avoided.

Thanks to this different philosophy, which has become a self-perpetuating culture through social pressure, Asian consumers were and are often unable to deal with the market system. They might have "consumer sovereignty" in theory, but they do not exercise it.

In any disagreement with the management of a business establishment, who will be more likely to back down — the management or the customer? In most cases, especially in an Asian society, it's the customer who will yield to the "group consensus", even if he or she personally disagrees with the "consensus".

In short, Asian capitalism is failing for the same reason Asian democracy is failing — people simply don't dare to speak their minds. But the pen and the mouth are truly mightier than the sword, and it does not even require much effort to gain a victory.

At my college, for instance, a family has apparently been granted a monopoly over the photocopying business. Thanks to their monopoly power, they are pretty much free to mistreat students, as they indeed do — they have a reputation for slow service and shoddy work. It's only because the nearest competitor is a hot walk in the sun away that they can survive.

Most people patiently wait silently for the proprietors' attention (not easy to get, since they are often occupied with their work). This is often an intolerably long wait, and can be especially frustrating if you only have a few papers to have copied. Most people seem afraid to ask if they can be served because it would be "rude".

Fortunately, I have no such qualms. After a few times of waiting in frustration, I decided to be impudent and demand service the moment I arrived. As a result, I always tend to be served first, simply because I am always the only one who has the temerity to ask "Can you photocopy this for me?" The process of business could actually be expedited if only everyone dared to violate the apparent consensus of keeping silent and waiting to be served.

To take a slightly less petty example, my mother is often frustrated by the lousy service our banks provide. (This is especially no thanks to the government policy of creating an oligopoly by encouraging banks to merge.) Some time ago, a teller refused to serve her because she came in just before closing time — as if stating that the closing time is 5.30 gives you the right to close at 5.25.

She finally had it, so she wrote a letter to the bank's main office and to the branch that had abused her. (She also closed her account at the branch.) Knowing how lackadaisical Malaysian authorities are, whether they are in the public or private sector, she wasn't exactly expecting a response.

Today, she popped in to the branch for some business, and saw the teller who had served her looking sheepish. Then she was approached by the bank manager. Apparently, her letter to the main office had reached a high-ranking executive, who demanded an investigation into exactly what happened. They went as far as to review the security camera footage to determine what took place. The manager apologised profusely, and even though it was too late to change much, it was clear that she and her teller had been put in their place.

These seem like little things, but one of the first things any economist learns is that small things add up to huge changes. After all, that is how any imbalance in the market is corrected — the price mechanism works incrementally to drive up or drive down prices in correspondence with the supply and demand of the good or service in question.

The hypothesis that Asian capitalism fails may seem a bit ludicrous, since Asia is the only third world continent to have had a modicum of success with capitalism. But I would posit that it's quite clear the markets of Asia differ from those of the West in several respects — and one of those largest differences is in how consumers behave and assert their rights.

This hypothesis does not, I think, explain why Africa or South America continue to languish economically. But economies are complicated systems, and simply changing a few variables can create a totally different outcome. As suggested before, it does not make sense to lump the three continents of the third world under a one-size-fits-all label.

There are of course exceptions. Some countries, such as Taiwan and South Korea have consciously broken away from the traditional mould of Asian culture, and asserted their rights — which is why both their markets and their democracies are more efficient, more powerful, than those of other Asian countries. Societies with a more egalitarian culture such as Japan also escape the impact of "Asian values", even though they still indulge in notions such as the idea that open disagreement constitutes "losing face".

Another interesting thing about this hypothesis is that it seems to be able to explain the vast income inequalities in Asian countries. While some of this obscene inequality no doubt results from simple economic growth and the normal rewards of the market system, I think quite a bit also stems from the fact that the rich are more likely to open their mouths.

When you are an authority figure yourself, in an Asian society, you tend to be more free to trample on the rights of others. Malaysia is one prime example of the rule of convenience as opposed to the rule of law. You are more free to speak your mind, more free to assert your rights and make demands.

This is also a self-perpetuating culture, with the elite teaching their children by example to assert themselves. Thus, those from the upper class have a greater predilection for making demands and speaking up.

Meanwhile, those without any authority — the poor — rarely have the guts to negotiate a deal or ask for something beyond that which they have been given, even if it is their right. Because of this, they miss out on several opportunities that a rich person in their place would have grabbed.

Although it seems doubtful that this effect is totally absent in the West, its impact seems to be ameliorated by the egalitarian culture of equality there. In the United States, an irate consumer does not walk away, no matter how huge the gap in income and power between him and the target of his ire. He puffs up his chest and states "I have rights too, you know!"

There is no such thing in most Asian cultures and societies. Under "Asian values", respecting the apparent consensus is more valued than correcting an error that has been made by the group. Because we don't speak our mind, the Asian consumers do not bring to bear the great power available to us under the market system — and that is why we don't only have lousy governments, but also lousy businesses.

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