East European Challenges to East Asia

Resum

The 1980's ignited a universal trend towards economic liberalization. This momentum has eclipsed previous attempts to open up world trade. The globalization of capital markets is perhaps the most distinctive element of what might he termed a "New World Economic Order". Globalized capital markets involve a flow of "quicksilver capital" that flows through geographical borders and defies political boundaries. Countries with "capital friendly" institutions shall attract the interest of itinerant investors, either as foreign direct investment, equity investments or lending.
Thus, comparative advantage in the 1990's shall depend upon institutional arrangements that provide opportunities for profitable operations. In the end, those countries with the greatest predisposition for flexible and responsive institutions shall be able to develop and to maintain comparative advantage in the New World Economic Order.
East and Central European countries are in a position to develop a new set of institutions that may allow them to displace East and Southeast Asia as a net recipient of direct investments and portfolio capital. First, East and Central European countries are beginning with a "clean slate" of institutions due to their radical transformation. Second, their labor is highly skilled (surplus) with high productivity and low, real wages. They also have reach access to mature (importoriented) markets. Finally, Europeans tend to display more of the necessary qualities of a true entrepreneurial class. Real entrepreneurs tend to exhibit an iconoclastic willingness to challenge the status quo, including questioning of governmental authority. Embodied in this entrepreneurial spirit is an unrelenting sense of individualism.
Since these conditions and characteristics are mostly absent in an Asian setting, East and Central European countries have a unique opportunity to set off upon their own miracle path of economic growth and development.