This article is from the August 15, 2001, issue of Red Herring magazine.

Recently I had the occasion to visit Indonesia and Argentina, two developing nations facing similarly difficult structural and economic challenges. So severe are these issues, in fact, that their political leaders, President Abdurrahman Wahid of Indonesia and Fernando de la Rua of Argentina, are both considered vulnerable to being toppled before the next scheduled elections.

When one studies each nation's predicament more closely, similar themes emerge in regard to the causes of their economic ills, as well as the cures. And on a greater scale, these themes remind even the economically advanced nations, including the United States, of the principles that nations must embrace in order to compete successfully in and share the fruits of the new economic world order.

To better understand Indonesia, as well as Asia in general, I read a valuable book that I highly recommend to all Red Herring readers: Thunder from the East: Portrait of a Rising Asia (Knopf, 2000), by the Pulitzer Prize-winning team Sheryl WuDunn and Nicholas Kristof of The New York Times. The book's general theme is that the Asian economic crisis of the late '90s was the best thing that could have happened to Asia. "It entailed a terrible human cost, but it is also helping to destroy much of the cronyism, protectionism, and government regulation that had burdened Asian businesses. The Asian economic crisis forced a greater reliance on markets, democracy, and the rule of law," note the authors.

Ms. WuDunn and Mr. Kristof believe that China and India in particular have several emerging competitive advantages. For one, the book points out that just about every private and public economic forecast shows that the East will gain considerable market share of the global economy in the coming decades. For example, the World Bank's forecasts show Asia's share of global gross domestic product rising from 19 percent in 1950 to 33 percent in 1998 and to 55 or 60 percent by 2025. "In that year, Asia will still lag behind the West in technology, nuclear weaponry, and per capita income, but it will have approximately the same share of global income that the West had at its peak in the '50s." Second, "the increasing importance of technology in the world today may match the strengths of Asia, which emphasizes math and science in its high schools and turns out far more engineers than any other part of the world." "The [Asian economic] crisis helped launch a political, social, and economic revolution that is still incomplete but that ultimately will reshape Asia as greatly as the fall of the Berlin Wall reshaped Europe," the authors proclaim.

Their largely bullish analysis isn't without its caveats, however. "Many Asian countries in Southeast Asia are talking about an economic union, but European-style integration is many decades away if it ever comes. In addition, in most of Asia the half of the population that is female is hugely underutilized and reflects a tremendous economic potential that is squandered. Legal systems are still opaque and often useless, banking systems old fashioned, venture capital scarce, and political leaders reluctant to force through the market-oriented changes that are really needed." Unfortunately, one of these reluctant leaders is Mr. Wahid. While he has made a gallant effort to clean up much of the corruption that existed during the 32-year reign of his predecessor, President Suharto, and while he has been an eloquent speaker for equality and tolerance, his ability to provide economic leadership is seriously in question.

As for Argentina, which has been battling a recession for almost three years now, that country doesn't have as rosy a forecast as China or India either. And if President de la Rua resigns, as was the rumor when I was there, it could set the country back even further before it's able to get back on the right economic track. Not all is bleak in Latin America, however. Both Chile and Mexico are starting to look more like Asia, and their sister countries, like Argentina, can look to them for mentoring.

The good news is clearly that the invisible hand of the new economic world order appears to be slowly driving most developing nations in the right direction. In order to be successful, political systems must be open and transparent and allow for vigilant opposition. Governments and the private sector must also promote and protect independent judges, permit a free and inquisitive press, and most importantly, abide by the rules and follow responsible practices. Red Herring readers should keep in mind that the active buildout of the global digital networks and the other science-and-technology innovations that they are pursuing will be huge facilitators of a more open and democratic world. And that is something to be truly proud of.

Vinnee Tong contributed to this article. For a subscription to Tony Perkins's newsletter, send an email with Subscribe in the subject line to tonynet@redherring.com.