Oleh/By		:	DATO' SERI DR. MAHATHIR BIN MOHAMAD 
Tempat/Venue 	: 	HONG KONG (HK) 
Tarikh/Date 	: 	14/10/92 
Tajuk/Title  	: 	THE EUROPE/EAST ASIA ECONOMIC 
			FORUM EAST ASIAN REGION: TOWARDS A 
			PROSPEROUS FUTURE 




 Distinguished Guests,
Ladies and Gentlemen,
    Allow me to congratulate the World Economic Forum (WEF)
for  organising  this  first meeting of the Europe/East Asia
Economic Forum.  I would also like to thank them for  invit-
ing me to deliver this keynote address.  The hosting of this
forum  is  indeed  timely  given the rising protectionism in
international trade and the creation  of  exclusive  trading
blocs.    Unless  good  sense is restored there will be much
that everyone will lose.  And good sense will  only  surface
when interaction and dialogue expose the dangers facing us.
2.   For the Eurocentric world of the past East Asia was the
Far East.  And the Far East conjured up many strange and ro-
mantic  images  of  exotic Cathay and dragons, of tea, opium
and exquisite silk, of strange peoples  with  even  stranger
customs.
3.   Unfortunately  for the European romantics, the Far East
has now become East Asia, a region of concern not to the ro-
mantics, of which there are not many left,  but  to  politi-
cians  and economists.   European uneasiness seem to suggest
that  Asia  today  is  a  more  serious  threat  than   even
militaristic  Japan  in the first half of the century.  Run-
ning through this perception is a current  of  distrust  and
fear.    For  East  Asia is peopled by different people, not
Europeans but by non-Europeans.
4.   Thus a pacific but economically progressive  East  Asia
in  the post World War II period does not seem to be as wel-
come as a pacific and  prosperous  Germany  and  Italy,  the
European partners of the World War II Axis.  Whereas the re-
covery  and  economic  growth of the two European members of
the Axis were not hampered, indeed were  welcome,  the  eco-
nomic  growth of a pacific Japan and of the little Japans of
the Far East appear to be less welcome.
5.   And so Europe, together with the transplanted  original
European  Community, the United States of America have tried
to stifle the growth of the East Asian states through  vari-
ous impediments.  Apart from the attempt to impose the west-
ern  model  of  democracy,  clear attempts have been made to
render the economies of the states of  East  Asia  uncompet-
itive.
6.   This  is  unfortunate.   The world has gained much from
the East Asian approach to  development.    Having  accepted
that  the military route is not productive, Japan had turned
its tremendous skills and energy to creating a  world  where
the  poor can live almost as comfortably as the rich.  It is
the Japanese who succeeded in lowering cost  without  sacri-
ficing  quality  and so make available yesteryear's luxuries
to more people.  True it is not altruistic but the  end  re-
sults are the same.
Ladies and gentlemen,
7.   It  is  difficult  to imagine a world without Japan now
but it is worthwhile to try  and  do  so.    Without  Japan,
Europe and America will dominate the industrial world.  They
will  set  the  standards  and the prices which they and the
rest of the world will have to pay for the goods which  only
they can produce.
8.   In  their quest for ever higher standards of living for
their people, their likely approach in the absence of compe-
tition is to raise prices in order to recover cost.    Their
socialistic  and  egalitarian  philosophy demands that their
workforce be paid whatever they and their unions think  they
deserve.   The Europeans will meet all their demands and the
consequent not inconsequential demands of their  executives.
Cost  will  go  up as pay packets become heavier while work-
loads become lighter.
9.   Raw materials imported from  the  poor  South  will  be
fixed  at  the  lowest level when the European North are the
sole buyers.   This will  make  the  South  a  poor  market.
Rather than pay higher prices, loans and aid would be given.
The  terms  of  trade will always be against them, rendering
them poorer and poorer and making them less and  less  inde-
pendent.    In  addition the loans condition will make debt-
slaves of these nations.
10.  Since all the products of the European  North  will  be
high-priced,  perhaps  three times higher than they are now,
the poor South would not be able to afford  the  radios  and
televisions  and the few domestic appliances which they take
for granted now, nor would their small farmers  own  pick-up
trucks  and small motorcars.  Generally the South would have
a much lower standard of living than now.
11.  The economic development of some of the states  of  the
South  and  the  emergence of a number of vibrant industrial
countries in East Asia would also not happen.  It is  impor-
tant  to  remember  that it was the need to compete with the
Japanese that forced the Multi-National Companies (MNCs)  to
invest  in  the  low labour cost South.   Without this need,
there would be no investment in  the  developing  countries.
And since there would be no Japanese to invest, the stimulus
to growth due to foreign investment would not be there.
12.  In  addition  without  Japan  and  the Japanese success
story, there would be no role model for the East  Asian  na-
tions.    They  would continue to believe that the Europeans
could not be challenged in the fields they had pioneered and
perfected.  Sophisticated industries were not for  the  East
Asians.    At  best  they could imitate and produce inferior
products.  And so there would be no  tigers  or  dragons  to
worry the West.
13.  It  was  Japan  which  proved that it could be done and
done well.  And the other East Asian countries dared to  try
and to their surprise and that of the rest of the world they
succeeded.    East Asians are no longer shackled by an infe-
riority complex.  They now believe what Japan can  do,  they
too can.  And they did.
14.  A world without Japan will certainly be very different.
It will not be uncharitable to say that the rich North would
be  richer and the poor South would be poorer.  The European
North's domination of the world would be permanent.    Coun-
tries  like Malaysia would continue to plant rubber and mine
for tin and sell at whatever price dictated  by  their  rich
industrialised customers.
15.  It  is  a scenario that many will dispute.  But it is a
plausible scenario nevertheless.  If we try to imagine  what
would  happen  if  the Japanese did not invest in Europe and
America and kept all their cash at home we may  get  a  fair
idea  of  the consequences.  The Europeans would have to pay
higher prices for their own manufactured goods and would not
have the money needed for their own expensive lifestyles.
16.  As it is, if  Europe  becomes  protectionist  Europeans
will have to pay more for everything.  On the other hand the
countries which open themselves to the products of East Asia
will  enjoy  lower-priced  high quality goods.   Perhaps the
economies of scale will not be achieved by the  East  Asians
without  the  European markets.   But they have demonstrated
that even small production runs can make  them  competitive.
With  abundant low-cost labour, the investments in machinery
for high-speed production will not be needed.   In any  case
East  Asian  investment  in  the  developing  countries will
sooner or later enrich their markets and  make  up  for  the
loss of the European market.
17.  The  countries  of East and South East Asia now consti-
tute a very substantial market  for  the  goods  of  Europe,
America  and Japan.  This is due to their rapid economic de-
velopment resulting from investments initially made  by  the
Japanese.  As they prosper, these East Asian countries began
to  invest  in  their less prosperous neighbours.  Today the
ASEAN countries, still classified as developing,  are  actu-
ally  investing  in Indochina.  With this the chances of the
states of Indochina progressing the way the ASEAN  countries
have  are  quite good.   Once Indochina moves into the main-
stream, East Asia will become a big market  and  a  powerful
economic region.
Ladies and Gentlemen,
18.  There  are some who believe that the free market system
is reserved only for democratic countries.   One should  not
help  undemocratic  countries  to benefit from the free mar-
kets.  One should insist upon democracy first  or  democracy
together with free markets before one extends a helping hand
to develop a country.
19.  In  East  Asia  there are countries which are not demo-
cratic but which have more  or  less  rejected  the  command
economy of the Communist.  They have espoused private enter-
prise  and  the  free  market.   The signs are that they can
prosper economically.  Their people while still  politically
tethered,  are  now  better off.   Do we try to prevent them
from prospering in order to force them to be  democratic  or
do we help them now?
20.  In  the  former  Soviet  Union and the Eastern European
countries, democracy was introduced along with the free mar-
ket.  The result is chaos and increased misery.    Not  only
have  the  countries  broken up, mainly through bloody civil
wars, but there is actual recession and  more  hardship  for
the  people  than  when  the Communists ruled.   One may ask
whether democracy is the means or the end.  Democracy at all
cost is not much different from  Communist  authoritarianism
from  the  barrel of a gun.  Both in theory are for the good
of the masses.  But clearly the results of democracy in some
of the Eastern European and the former Soviet republics  are
not  much  different from Communism as far as the people are
concerned.  Even the nations, broken up  and  unstable,  are
not better off.
21.  In a number of East Asian countries, while democracy is
still  eschewed,  the  free market has been accepted and has
brought prosperity.  Perhaps it is the authoritarian stabil-
ity which enables this to happen.  Should we enforce  democ-
racy  on people who may not be able to handle it and destroy
stability?  Or should we allow for a  natural  evolution  of
democracy?   Actually authoritarian rule cannot be sustained
once a country achieves prosperity  through  a  free  market
economy.   Sooner or later the prosperous free market people
will demand for more freedom.  And the Government must  give
in.  Thus there will eventually be not just a market economy
but democracy as well.  Perhaps this is wishful thinking but
events  in a number of countries show that a prosperous free
market people cannot be kept shackled for long.  So  helping
undemocratic  nations  to prosper under a free market system
is a positive way to achieve democracy.
22.  East Asian countries' involvement in rehabilitating the
economies of their less democratic members is perhaps a bet-
ter way than the precipitate adoption of democracy in  East-
ern  Europe  and  Russia.   Democracy should come gradually.
This is the East Asian way.   This is culturally  more  East
Asian.
23.  And  culture is important.  East Asia is not just a ge-
ographical entity.  It is also very much a cultural  entity.
To be East Asian a nation must not just be geographically in
the  right location.  It must also be culturally East Asian.
And the cultures of East Asians are very different from  the
cultures  of  the West.   We are for example not so given to
giving unsolicited advice or sitting in judgement over  oth-
ers.  Diffidence is good manners for us.  Bluntness is not.
24.  And so despite differences in political ideologies, the
countries  of East Asia may evolve in the near future into a
crescent of prosperous nations  extending  from  North  East
Asia  to  South East Asia.   This economic crescent will be-
lieve in free enterprise and in free  economic  competition.
It  has demonstrated that it can prosper and succeed without
being inward-looking and ganging up.  It is prepared to com-
pete and compete freely.
Ladies and gentlemen,
25.  The only grouping in its midst  so  far  is  the  ASEAN
group.    This group is more political than economic.  It is
not protectionist.  It is not a trading bloc.   When  in  15
years  time  Asean Free Trade Area (AFTA) is formed, it will
give certain advantages to  the  members  in  intra-regional
trading.  But otherwise the members will continue to be free
to trade with the rest of the world.
26.  Despite  the  ascendency of protectionism in Europe and
North America, East Asia has not shown a desire  to  form  a
trading  bloc  of  its own.   There has been no governmental
proposal for a free trade arrangement or area.    There  has
been  no  proposal  for an East Asian Preferential Trade Ar-
rangement (PTA), Free Trade Area (FTA), customs union,  com-
mon  market  or  economic  union in the last decade although
South Korea did propose an "Asian Common Market" in 1970 and
Japan's MITI proposed an "Asian Network" in March 1988.
27.  There has, however, been an ASEAN proposal for an  East
Asian  Economic Grouping or Caucus.  This is not a PTA, FTA,
a custom union, a common market or an economic union.  It is
merely a forum for the East Asian countries to discuss  com-
mon problems related to international trade so that a common
stand  can be taken with regard to maintaining international
free trade.   Additionally it can help  the  less  developed
members  to  accelerate economic growth in the same way that
the ASEAN countries serve each other.
28.  The countries in the EAEC can continue to trade  freely
with the rest of the world including EC and NAFTA.  We think
it will do them no harm.  This is because without any formal
agreement they have always been able to trade with the world
and to achieve growth.
29.  And they can trade with each other.  Without the inter-
vention  of  Governments  or  deliberate integration of East
Asian initiatives, intra East  Asian  trade  has  vigorously
grown  to 40.8 per cent of their total trade in 1990 despite
the fact that the total GDP of East Asia  was  only  18  per
cent of the World's GDP.
30.  Last  year  the U.S. took only one fifth of the exports
of the East Asian economy, down  from  one  third  in  1985.
Japan  now  exports  more to East Asia than to the U.S. even
though East Asia minus Japan is only 19 per cent the size of
the American economy.
31.  Clearly a formal agreement or arrangement or  community
is  not  necessary  for  the  East Asian nations to prosper.
Merely by reacting to free market forces, they are  able  to
make their economies complementary and mutually stimulating.
But  for  their  own good and that of the world they need to
defend the world's free trade system.
32.  In the meantime what is happening in Europe?   Fear  of
another  destructive  European  war  as well as the disinte-
gration of their overseas empires had forced  the  Europeans
to  come together in the immediate post World War Two years.
A European Economic Community was mooted in order to rebuild
Europe and reduce the type of  European  belligerency  which
had  prevented  that continent from knowing peace for centu-
ries.  Essentially the EEC was to be an economic bloc.    It
would be in a better position to compete with the culturally
similar United States of America.
33.  The European Community was a sound idea and should suc-
ceed  but  for  the  emergence of Japan as an economic power
house.  This threw their carefully-laid plan into  disarray.
Instead of sticking to fair competiton in a free trade envi-
ronment  as  advocated  by  both  Europe  and  America,  the
European North decided on protectionism and pressures.  True
the Japanese had quite unnecessarily protected their market.
But the strategy adopted by Europe through the Group of 7 is
contrary to the principles of fair competition.
34.  Voluntary quotas and yen revaluation  may  help  Europe
but  the cost to them can be high.  In the case of quotas it
is the people in Europe who must pay.   The  revaluation  of
the yen in particular simply made the Japanese richer.  They
were not only able to buy their raw materials, including pe-
troleum  at  half-price, but their investments and purchases
abroad cost them much less.
35.  Unable to compete with  East  Asia  in  the  burgeoning
electronic  and  consumer-goods industries, Europe opted for
the manufacture of sophisticated military  hardware.    This
was  fine  as long as the Cold War lasted.  Today weapons no
longer find a ready market.   Manufacturing facilities  have
to  be  closed  down  and  hundreds  of thousands have to be
thrown out of work.
36.  Because wages are maintained at  an  artificially  high
level  and  unemployment benefits are unlimited, new invest-
ments are not forthcoming.  Thus at a time when state reven-
ues are low due to a downturn, the need for more expenditure
on social security is increased.   The two  just  cannot  be
reconciled.
37.  The  end  of  the  Cold War has not brought any relief.
True there is a lot of savings on military  expenditure  but
the cutback only resulted in soldiers becoming redundant and
unemployed.  At the same time the new democracies in Eastern
Europe  and  Russia are not developing into good markets for
the West.  Instead they require massive financial support of
Europe, just when it can least afford it.   Failure to  sup-
port  these  countries  can result in massive migration from
East to West.  In the past when this happened  the  problems
were  horrendous  and  defy solution.   More and more we are
seeing the kind of racial intolerance of the pre-war period.
Thirty million East European and Russians migrating  to  the
West will upset everything, including economic recovery.
38.  The   mechanism   of  economic  cooperation  among  the
European countries has all but  broken  down.    The  recent
failure  of the Exchange Rate Mechanism (ERM) is an example.
There is still a great deal of will to forge ahead with  the
European Union.  But will alone cannot work.
39.  The  fact  is  that  Europe is living beyond its means.
Its people are being paid too  much  for  too  little  work.
Europe cannot really expect the rest of the world to support
their  profligacy.   While Europe expects high living stand-
ards and a healthier environment for its people  it  is  not
willing  to  make  sacrifices.    When it was suggested that
Europeans accept a lower standard of living in order to sus-
tain the environment, they reacted with horror.    Yet  they
expect  the  poor countries not to exploit their own natural
resources because these are needed to sustain  the  environ-
ment  of  the North.  In other words the poor must sacrifice
for the rich.  But the rich will not make any sacrifices.
40.  There was a time when Asians looked West  for  guidance
and  models.  Perhaps it is time for Europe to look East for
the same.  Perhaps this forum can serve that purpose.
Ladies and gentlemen,
41.  I am not sure whether you consider me an East Asian  or
a South East Asian.  Whatever I may be, I must admit that my
views  are  coloured  by the fact that I am not only a South
East Asian but I am also from a developing country.
42.  Malaysia has certain ambitions.  We want to be a devel-
oped country one day and we find it frustrating when  unnec-
essary  obstacles are placed in our way.  We believe in free
trade and fair competition.
43.  In the ASEAN experience friendly  competition  and  the
willingness  to learn from each other can contribute to good
economic progress.  Similarly we think that competition  and
willingness  to  learn among East Asian nations will achieve
the same results.  By extension fair competition and cooper-
ation between Europe and East Asia  will  help  everyone  to
prosper.
44.  East  Asia  would never be protectionist even if Europe
and America become protectionist.   East Asia  can  compete.
It  has  demonstrated  this quite clearly.   For instance in
1960 the combined GDP of East Asia was 42 per cent  that  of
the EC, 23 per cent the size of the U.S. and 21 per cent the
size  of NAFTA.   By 1990 the combined GDP of the East Asian
countries was 67 per cent the size of the EC,  47  per  cent
the size of Western Europe, 73 per cent that of the U.S. and
64 per cent the size of NAFTA.
45.  Intra East Asian trade has also grown in absolute terms
and  by percentage of world trade.  It has done this without
recourse to protectionism and despite the many  obstructions
placed in its way.
46.  In  the process it has improved the quality of life not
only of its own people but of the poor peoples of the world.
47.  The success of East Asian countries is not due to  some
magic.    What Japan has done, other countries in East Asia,
to a greater or lesser degree, have also been  able  to  do.
And by the same token the countries of Europe can also do.
48.  The  main ingredient of this success is the willingness
to accept lower living standards when one  cannot  afford  a
higher  one.  East Asians are willing to do so.  They should
not be forced to have a higher living standards in order  to
nullify  their competitive edge.  Rather it is the Europeans
who must question the wisdom of their ways and come to terms
with reality.  Then Europe and East Asia can  cooperate  for
mutual benefit.  But whatever the situation East Asia cannot
be stopped.  It has a right to develop itself.