Asia's continuing crisis

The hyper-growth economies of Cold War Asia were, to varying degrees, based on wartime mobilisation systems in which the government seized control of much of the capital flow and directed it into those industries that seemed to be the foundation of national power-steel, shipbuilding, cars, petrochemicals and into those firms that seemed most loyal to the cause of national power. The common outcome was excessive government control over the use of capital. This provided initial strategic advantages and later vulnerabilities. Initially, governments were able to channel funds towards vital basic industries that were short of capital. But later, the same policies wasted capital on such a vast scale that whole sectors and whole banking systems risked collapse. The resulting regional crisis is crippling old leaders and opening opportunities for new ones. For the foreseeable future, China, a small and backward but decisively managed economy, is increasingly acknowledged within Asia as the region's leader-not loved, to some extent feared, but respected. Japan, with a huge and modern but mismanaged economy, has become the sick man of North-east Asia.