The Nasdaq is up 31 per cent so far this year, and technology companies are finally showing double-digit profit growth. The industry downturn has been long and brutal but, finally, shimmers of recovery are on the horizon. And not a moment too soon for Asia's battered economies. What have we learned over the course of the boom-bust cycle? That the fates of the information technology (IT) industry and Asian governments are closely intertwined.
Back in the heady days of 1999, South Korea's chaebols were in bankruptcy death throes from the Asian currency crisis; Japan's big five electronics companies were bleeding red ink; Southeast Asia was the disk-drive capital of the world; Taiwan was on the edge of breaking out of outsourced manufacturing into innovation; Hong Kong established a science park, declaring itself open for IT business; and China and India were footnotes in the global technology world.
How times have changed. China is now the largest mobile phone market in the world and claims the second-largest personal computer market and internet user base. China's technology output has also grown dramatically, as Southeast Asia's has shrunk; Taiwan is still firmly entrenched in outsourced manufacturing; and South Korea is the rising phoenix with globally competitive and innovative leading-edge, name-brand products. The normally nimble Hong Kong has made no noticeable progress in establishing a technology sector, while technology conglomerates in Japan have miraculously restructured and outsourced to reclaim their edge in select sectors. And where has China been sending delegations to study start-ups? Not Silicon Valley or Taiwan's science parks—but to India.
As we argue in a report from the research institute RAND, in Asia, the rise and fall of technology-industry fortunes are inextricably linked to the policies of governments. Since Japan first led the way, technology exports are considered one of the most coveted economic drivers in Asia.
But as many bureaucrats are finding, strategies effective in erecting past-pillar industries cannot be easily applied to technology. Protectionism, subsidies and heavy regulations were used to establish banking, steel and vehicle industries. In contrast, the technology industry requires a combination of creative thought to develop intellectual property, the legal and enforcement infrastructure to protect it, an efficient capital market, and management expertise to produce competitively or to outsource, and then to market globally.
Government policies can make or break a country's IT industry, but influence travels in the other direction, too. The internet and mobile phones are only becoming more critical to how politics and governments operate in many Asian countries. Interestingly, this is true in democracies and one-party states alike.
Perhaps the most dramatic example of technology's influence on government in Asia happened in the Philippines. In 2001, Filipinos used mobile cell phones, email chat groups and websites to organise and carry out the campaign to oust against President Joseph Estrada. In last year's South Korean election, the success of President Roh Moo-hyun was attributed in large part to his internet-based supporters' organization, Nosomo.
Of course, most eyes have been watching China for signs of IT's political influence. While the Chinese government has successfully used a variety of both hi- and low-tech measures to counter the political influence of the internet, it is enormously invested in technology's commercial role and encourages its use. As a result, there is no question that technology is affecting politics there. The Sars outbreak provides just the most recent example. Chinese turned to foreign websites for information when the government would not admit to the crisis. This phenomenon will prove to be a major force for political change in China, especially during crises.
Technology is also changing how the Chinese government itself operates. While most e-government initiatives are aimed at greater efficiency, in some of the wealthier, coastal cities, local officials have been experimenting with the potential of technology to exchange views with the public directly. Again, this could foretell real political reform.
Thus, for the foreseeable future, while government policies will have a strong hand in the success or failure of the IT industry in Asia, the technology produced will continue to empower citizens to comment and act on the success or failure of government policies as well as on the politicians themselves.
Nina Hachigian is director of the Centre for Asia Pacific Policy at RAND, a non-profit research institute based in Santa Monica, California. Lily Wu is a technology-sector financial consultant. They are authors of the recently released RAND report, The Information Revolution in Asia (full document).
This commentary originally appeared in South China Morning Post on July 31, 2003.