BOOK REVIEW Overextended banker collapses The Next Asia by Stephen S Roach
Reviewed by Muhammad Cohen
It's a strange time for a banker to try to show us how smart he is. Yet that's
precisely what Morgan Stanley Asia chairman Stephen Roach sets out to do in The
Next Asia. It's a tall order, and Roach is an odd choice for the task.
Touted by the dust jacket as a "thought leader" on Wall Street, Roach moved to
Hong Kong in 2007 to take the investment bank's top job in Asia after 25 years
as senior and chief economist for Morgan Stanley in New York. That may sound
more impressive than it really is.
In recent years, Morgan Stanley has run a distant second to
Goldman Sachs in the two-member investment banking major league, the New York
Mets to Goldman's Yankees (or Manchester City to Goldman's Manchester United),
according to one former Morgan executive. As for Roach, "He was a star analyst,
people paid attention to what he wrote," the former executive said. "I'm not
sure they made money that way, but they kept coming back. He was also an
old-time Morgan Stanley big shot, like Barton Biggs. That meant he had clout in
the old boys network, more than a simple analyst would, however popular."
A current top Morgan executive was more definitive about Roach's investing
advice: "He cost people a lot of money. He missed the rally through 2007." Yet
people still listened to Roach. That may help explain why Roach thought it was
important to produce this misbegotten book.
Who's
next?
First, the title is wrong: the book is not about a "next Asia" but about the
Asia of the past decade. Wholly appropriate in that context, it's
overwhelmingly about the US, China and the relationship between them. There's
some discussion of Japan and India, albeit mainly in the US-China context. For
other Asian countries that would make up a new Asia, such as Indonesia, the
giant of the 10-member Association of Southeast Asian Nations, and South Korea,
one of only 30 members of the Organisation for Economic Cooperation and
Economic Development, Roach offers little beyond conventional wisdom postcards,
perhaps supplemented with a glance through the window of a limo or high-floor
conference room.
The book is a compilation of Roach's essays dating back as 2006. Some are
previously published, many intended for clients or colleagues in his role as
the bank's macroeconomic guru. Some focus on issues deemed important at the
time but now forgotten. They're divided into five broad areas: the global
economic crisis; globalization; China's economy; the rest of Asia; and US-China
relations. While the topics sound very distinct, they often blend together,
perhaps because Roach doesn't have enough ideas on each to keep them distinct.
A longstanding bear on the US economy, Roach called for the housing bubble to
burst starting in 2004 (thereby missing the stock market run-up to 2007). His
big idea about the crisis is that the overextended US consumer can no longer
support Asia's export-led boom. The flipside, which also applies to sections on
China's economy, the rest of Asia and US-China relations, is that Asian
consumers, especially Chinese ones, have to consume more.
The US-China section also features Roach's play-by-play of his congressional
testimony cautioning against trade restrictions or currency revaluation
pressure on Beijing. He suggests it's up to the US to pull up its socks - save
more and narrow its global trade deficit - but he offers no useful guidance on
how to do this. But he repeatedly warns that protectionist policies are about
to cripple crucial US economic relations with China.
Choose globalization or decoupling
The current, web-based version of globalization challenges longstanding trade
theories, such as comparative advantage, according to Roach. It's not just
assembly-line workers, but knowledge professionals who are vulnerable to
offshore competition, particularly from Asia's giants. It's a clever
observation, but Roach doesn't take it anywhere, leaving any possible fix to
policymakers.
Roach also challenges the notion of decoupling - Asian economies moving
independently of the US - claiming that globalization means economies are more
closely linked. His analysis makes sense, though it's based more on semantics
than economics. Roach doesn't suggest whether decoupling would become more real
with the greater Asian private consumption he advocates. It seems to be the
exceptional case where free-market boosters believe in a zero-sum world rather
than a growing pie promising more for all if we only let the invisible hand
work its magic.
Roach sees issues from his thinking banker's perch, built on conventional
free-market thinking, high above any need for practical solutions or,
apparently, original thought. On the US economic crisis, he admits that bankers
were a leading cause, but he rejects greater regulation to prevent bankers from
doing it again. Like many business people who know where their bread is
buttered in China, he implicitly accepts the good faith of China's leadership,
while dismissing that of American leaders, especially Democrats.
More telling, when urging expansion of Asia's consumer appetites, the idea of
more effective poverty eradication never comes up, despite hundreds of millions
of Chinese, Indians and other Asians still living on less than US$2 a day.
Similarly, there's no discussion of the Asian preference for putting savings
into property or gold rather than into negotiable financial instruments or of
its broader economic impact, a topic that ought to be of great interest to
Asia's bankers, especially foreign ones who would like to introduce new
financial instruments but find demand limited.
Felony confession
Of course, Roach can address any questions he wants and that his publisher will
allow him, as long as he does it honestly. The one unpardonable offense is
wasting readers' time, and Roach pleads guilty to it. The case against him was
pretty overwhelming without his confession, as essay after essay repeats the
same ideas. With reprinted essays, you'd hope to see the evolution of thought
over time or some link with events. But with Roach, whatever the essay's date,
it's the same thin gruel, ladled out again and again.
Roach elevates his offense against readers to a felony by admitting, on page
395, that much of what they just read was worthless. On the bursting of the US
housing bubble, Roach admits that the depth of the recession he forecast and
its global impact surprised him. On US-China relations Roach admits he probably
"cried wolf" on political grandstanding transforming into significant trade
barriers.
If Roach had left out all the stuff that's wrong or repetitive and simply
summarized his views, perhaps supplemented with thoughts on the shape of this
new Asia in his title and suggestions on how to get there, he would have served
up little more than a magazine article. Perhaps that wouldn't be grand enough
for a Wall Street "thought leader", Roach's ego or his pay packet, but it would
have would have been a lot more thoughtful toward readers.
The Next Asia: Opportunities and Challenges for a New Globalization by
Stephen S Roach. Hoboken, New Jersey, USA, John Wiley & Sons, 2009. ISBN:
978-0-470-44699-7. Price US$39.95, 432 pages.
Former broadcast news producer Muhammad Cohen told America’s story to the
world as a US diplomat and is author of
Hong Kong On Air,
a novel set during the 1997 handover about television news, love, betrayal,
financial crisis, and cheap lingerie. Follow
Muhammad Cohen’s blog for more on the media and Asia, his adopted home.
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