The 1997-98 Asian Crisis: A Property Rights Perspective.

In 1997 the "Asian miracle" came to a sudden and dramatic end. A group of East Asian economics that had performed remarkably well over the previous two decades suddenly found their currencies under intense speculative pressure, their stock markets fell dramatically, and their economic growth rapidly declined. The Asian crisis spread to other emerging market economics, notably in Latin America and Russia. Speculation on the causes of the 1997-98 crisis varies from an old-fashioned financial panic (Radelet and Sachs 1998), to poor regulatory environments and conspiracy theories (Krugman 1999). Events such as this call for policy responses and for a reformation of the international "financial architecture," which McKinnon (1996) refers to as "the rules of the game." Irrespective of what the precise rules are, they have common objectives: To foster efficiency in trade of goods and assets; to provide stability; and to provide an equitable, socially acceptable distribution of income and wealth (Swoboda 1999:2). Free markets appear capable of meeting all of these objectives. F. A. Hayek (1979) argues, for example, that free markets produce lower prices than any other economic system, while Herbert Grubel (1998) provides evidence that market-orientated economies have better human welfare along several categories (unemployment, human development, life expectancy, literacy, poverty, and income distributions). Dani Rodrik (1999) provides evidence that democracies (which are more likely to have market-based economies) pay higher wages, and have lower income inequalities, than nondemocracies. Proponents of altering the financial architecture, however, are not usually known to be free-market economists. Indeed, Alan Walters (1998: 304) has argued that "the most egregious errors ... were due to the neglect of the most simple principles of economies." Given that the underlying basis of all capital formation and economic growth is a well-specified system of property rights, it seems appropriate to investigate the crisis in terms of property rights.