Still tigers, but tamed a bit by the market system

Because we were dazzled by the growth rates of East Asia, we forgot that the very nature of rapid growth is that it is interspersed with sudden hiccups

Maybe the next century won't belong to Asia after all. Or at least that is the thought spurred by the sharp falls in the currencies and the stock markets of several hitherto admired Asian "tiger" economies. The shorthand is familiar: that the 19th century was dominated by Europe, the 20th by America, and so the 21st will be dominated by Asia. It certainly seems plausible: China in particular has been sustaining growth rates of between 8 and 10 per cent for more than 15 years and on this performance will overtake the United States as the world's largest economy some time around 2010. Hong Kong already has a higher GDP per head than Britain.

This economic success brought a certain arrogance. Leaders of countries such as Singapore and Malaysia lectured the West on its supposed moral decline, while Western think-tanks started to produce papers advocating "Asian values" - the importance of things as varied as self-help rather than state support, close family ties rather than fractured marriages, and high savings rather than spend, spend, spend.

So, the theory went, not only would Asia dominate us in economic terms; it would also come to have a profound influence on our ideas. Instead of trade in values being a one-way stream with Western values extending to the East, it would become a two-way one, with us starting to import if not values, certainly ideas, from them. Remember earlier this year Tony Blair, still Leader of the Opposition, talking admiringly of the Singapore pension scheme, which relies on compulsory savings rather than future taxation.

But in recent weeks the mood has shifted. Maybe the region is not so wonderful after all. The immediate reason for that change has been a financial crisis which began in Thailand in early July but which rapidly swept across the entire region. Thus, in dollar terms, the exchange rates of both Indonesia and Thailand have fallen by more than a quarter, and share prices have halved in the last year.

Even though the region is extremely diverse, the falls have proved contagious. Countries whose economies and financial systems are completely different have been hit. For example, Hong Kong's stock market is now at a four- month low, in contrast to the markets of Europe and North America. Yesterday the Chinese government put out a statement of support for the Hong Kong exchange, saying that Hong Kong was "economically strong", that it had "adequate currency reserves" and that it had "the solid support of the central government". As we know here to our cost, the moment governments feel the need to proclaim that everything is all right is the moment you can be sure it is not.

There is, however, a world of difference between periodic financial shocks and a long-term economic decline. It may come as a surprise to us that anything should go wrong in what we have come to think of as the world's most successful economic region. But it should not have done so. Because we allowed ourselves to be dazzled by the astonishing growth rates of East Asia, we forgot that the very nature of rapid growth is that it is interspersed with sudden hiccups. If an economy is geared to 8 per cent growth, coming down to 4 per cent creates all sorts of problems. But if we could sustain 4 per cent here, we would be the tiger economy of Europe.

Besides, what we are seeing is the financial reaction to an economic rebalancing within the region, rather than a sudden deterioration of the whole region's competitiveness. The trigger that set off the problems in such countries as Thailand, Indonesia, Malaysia and the Philippines has been a hiccup in export growth resulting from the expansion of exports from mainland China, these countries' principal competitor, in international markets - a fact that makes the Hong Kong market reverse all the more odd.

No, what I think we are seeing is not an end to the dazzling success story of the past, but rather a glimpse of the bumpy, but still-dazzling future.

The next century will see Asia, and particularly East Asia, playing a relatively more important role in the world. That is normal and natural. At the beginning of the last century, the world's largest economy was China; so it will be again. This time China, and indeed the whole of the region, has the advantage of being able to adopt not only state-of-the- art technology from the West, but also the West's state-of-the-art economic system.

The intellectual victory that the West won when China and the USSR adopted (admittedly rough) versions of market capitalism meant that the West had also lost the comparative advantage of what is, for all its many flaws, the best available way of organising an economy. For the next generation, at least, and maybe for the next century, the world economy will operate on pretty much a single economic system. Naturally regional variations in that system may well remain, but remember too that in a world of almost infinite information, any really effective variations can quickly be adopted elsewhere. It would be astounding if there were not some things that people in the American and European time-zones could not learn from people in the Asian one.

That is, however, a long way short of domination by Asia during the next century. For a start, there is an obvious fragility to the region. It is dominated by two great powers, China and Japan, which have had a historically difficult relationship. Their mutual security may, for the time being, by underwritten by the US, but we cannot assume that will continue indefinitely. There are also a series of specific political tests that will need to be taken, among them: the almost certain reunification of the two Koreas, the probable incorporation of Taiwan into China, and the possible transition to a real democracy in the region's other giant, Indonesia. The outcomes may not be towards the more favourable end of the scale.

So this rumble of market discontent of the last few weeks should be seen not as a sign that the East Asian economic miracle is over. The message is rather that now that the whole region is operating the market system, it will experience the same financial shocks that Europe and North America have come to accept. Booms will follow slumps, just as slumps will follow booms. That does not make such shocks any more welcome. It would be great if we could avoid them, or even damp down their amplitude. But we can't; and nor can they.