The countries of East Asia are like speedy well-built cars. Recently they hit a few bumps in the road, blowing out the tires. But instead of fixing the flats, international financial institutions are trying to reinvent the car. That is the mistake.
Nothing is intrinsically wrong with East Asian economies. The labor force is educated, well-trained and technologically skilled. The rate of domestic savings - still about the highest in the world - normally exceeds one-third of national income.
Budget deficit - amongst the lowest in the World - are generally below two percent of gross national product. Economies are open, tariffs are low, economic institutions are fairly well established, and export competitiveness is respected in global markets.
Most developing countries will take decades to reach East Asia's position in the world economy.
The current crisis is one of short-term liquidity, not long-term development. East Asian banks made some bad loans, but this is not unusual in an exciting period of fast-paced growth.
Short-term debts, particularly the inflow of speculative funds was not carefully monitored. The American and Japanese economies suffered worse financial troubles in the past (lest we forget the savings and loan fiasco in the United States, and the stock exchange bubble in Japan). The US and Japan managed to fix their problems over time. There was no need to redesign the automobile.
That is why so much of the current thinking on the East Asian crisis is baffling. For a start, it is the height of intellectual dishonesty to call the experience the East Asian Miracle for the last two decades, and then within a year, to start labeling it as Crony Capitalism. Nothing much has changed in East Asian economic fundamentals.
What is also amazing is that the International Monetary Fund (IMF) is applying the same cookie cutter approach to the problems of East Asia as does to all of its clients in the developing world.
Countries have been advised to reduce budget deficits for instance. But one may ask why this is necessary when such deficits are already low, and when there is a need to grow these economies, not to deflate them.
It is also important to remember that private financial markets and not profligate governments were the source of the financial irresponsibility in East Asia.
Why rush in with the same standard recipe of cutting down government spending, downsizing public institutions, sacrificing social safety nets, and often slashing education and health budgets - thereby unbalancing human lives while over-balancing financial budgets?
In fact the East Asian crisis says more about lack of global economic governance than about national actions.
The world simply does not have a credible lender of last resort that can bail out countries from short-term liquidity squeezes and prevent long-term economic damage.
Central banks perform this role at the national level. But we have no global central bank. The IMF is a pale shadow of what it is supposed to be.
At the IMF's creation in 1944, John Maynard Keynes wanted the institution to have resources equivalent to 50% of world imports while the powerful US delegate Harry White held out for a more conservative target of 15%.
Today the IMF's resources equal about 1% of the world's imports. Private speculators can in a day mobilize over 10 times as much in financial flows as the IMF commands in total. It is fair to ask whether world monetary policy is run by the IMF or by private speculators.
What is more, financial hurricanes now speed across borders at the rate of over US 1,200 billion every 24 hours at the touch of a computer keys. The speed of these transactions is breath-taking, their direction unpredictable, and their impacts sometimes destabilizing. These financial flows are inspired both by rational expectations and by irrational panic.
That is why James Tobin, Noble Laureate in economics, suggested about two decades ago that a small tax be imposed (Tobin Tax) to throw some sense in wheels of these panicky financial flows.
The purpose of the tax would be to raise the cost of short-term currency transactions, without affecting long-term investments, ensuring greater national control over global currency movements.
In the aftermath of the East Asian crisis, Tobin's proposal merits even more serious considerations.
At least three lessons can be drawn from the recent East Asian experience. The first is that globalization should still be treated as an opportunity not as a threat though it needs to be skillfully managed.
I was amazed for example that a number of South-Asian policy makers (particularly in India and Pakistan) started congratulating themselves on not having adopted the economic liberalization policies of their East Asian neighbors and having escaped the recent turbulence. This is a mistaken view.
East Asia started behind South Asia in 1960, and now is 27 times ahead in terms of its average per capita income. South East is a bicycle economy (compared to car economy of East Asia), and the absence of a tire puncture should be no cause for celebration.
The challenge is to graduate to a car economy which cannot be accomplished without universal education, rising investment and fast economic liberalization - the path that East Asia has already taken.
Second, whatever adjustment measures are taken, government must protect human development levels and social safety nets.
The World Bank's own studies demonstrate that as much as 80% of East Asia's real economic wealth consists of human and social capital. If that is sacrificed in the process of cleaning up the financial system, the real costs will be devastating and wholly unnecessary.
Third, East Asia does need to make some structural changes. China has emerged as the low cost supplier of low- and medium-tech consumer goods to the growing middle class of the world.
East Asia must reposition itself to higher technology, better skills and more complex manufacturing processes - much as Japan was obliged to do by the challenge of the East Asian tigers three decades ago.
It is time for a calm analysis of what really went wrong in East Asia. And where we went wrong in our own understanding and analysis. Some intellectual humility will help.