Leading Article: Should we be worried by the Asian meltdown?

IT HAS been suggested that the solution to Japan's economic problems would be for the government to print large amounts of money and drop it from helicopters all over the country. This is not such an outlandish idea as it sounds, the laws of economics being quite as counter-intuitive as they were when John Maynard Keynes proposed filling redundant coal mines with pound notes and digging them out again. What Japan urgently needs is for Japanese consumers to start spending their money, instead of saving obsessionally. Indeed, the only flaw in the helicopter solution is that most Japanese people would probably collect the money and put it under the mattress - or reed mat - or stash it in foreign savings accounts.

The Japanese problem is very different both from the crises afflicting the economies of the East Asian "tigers" and from the upheaval under way in China. We tend to lump them together under the loose heading, "Asian meltdown", but should be clear about the differences. Japan has been suffering from a chronic lack of domestic demand for some time, which is only now becoming acute.

While the Asian tigers are suffering a case of burst-bubble syndrome, after many years of extremely rapid growth which sucked in increasingly unsustainable lending from foreign banks. The value of their stock markets has plunged by between 32 per cent (Philippines) and 60 per cent (Malaysia) over the past year. And China has hit a period of instability as it attempts to make another great leap forward, this time from communism to capitalism.

The immediate danger in the region is that of competitive devaluation. If China seeks to protect itself from the devalued yen by devaluing its own currency, it will put intolerable strain on the link between the Hong Kong and US dollars. That in turn will undermine confidence in the Hong Kong economy, which is so important in the opening of China to world markets. It could also trigger a downward spiral in which the holidaymaker-friendly collapse of the Indonesian rupiah and Thai baht is succeeded by deliberate devaluations - a spiral which in the past has always led to protectionism. Now that would be a serious threat not just to the region but to the rest of the world, as it would throw sand in the hidden machinery which underpins our prosperity.

There is not much we in the West can do to avoid such an outcome beyond exhortation and the restatement of the virtues of free trade. But if it can be avoided, the outlook for all the Far Eastern economies is more optimistic than today's doom-tinged reporting might suggest. The turmoil in the markets shows all the signs of being overdone.

To that extent, the implications for Britain and Europe are limited. Despite huge publicity for Lucky Goldstar's hypothetical plant in Wales, net investment in Britain by Korea and Japan is relatively minor. Nor should we be too alarmed by the prospect of a flood of cheap Far Eastern imports: it should be remembered that the raw materials for Malaysian or Taiwanese goods have to be imported at dollar prices to these countries in the first place.

There are, though, two important geo-political lessons for the future. One is that there is no alternative, "Asian" model of capitalism based on corporatism, lifetime employment and just-in-time delivery. The advantages of transparent financial markets, flexible labour markets and free trade are universal. The other is that transparency is not enough.

This week's report from the central bankers' club, the Bank for International Settlements, points out that Western banks had plenty of information about the Asian tigers. The most important information was that their government underwrote the liabilities of private-sector banks. What lenders lacked was "the vision to imagine crises and the will to act pre-emptively". The world's economic leaders could do worse than adopt that as their watchword.