Investors' learned behaviour in need of revision?

We joined the ‘financial world’ in 1987 when inflation had in theory at least been conquered and the Asian Tigers had emerged to become significant parts of the global trading system.

As the years continued, the Asian Tigers were joined within the World Trading System first by the ASEAN nations and then by China and Indochina as the countries climbed the ‘Asian Development Ladder’.  Indeed, within 15 years of us starting work, the Asian Region had come to represent around a third of world trade (or more if one included Japan) and importantly companies within the Region had become price-setters in parts of the world trading system.

For historical, cultural, and political reasons, the Asian Region has never been a profit maximising region.  Instead, production volume growth was the principle aim of policy and this was primarily achieved  through either export growth or import substitution policies, strategies that required a preference for under-valued currencies, heavy levels of state planning in the development process, and persistent corporate financial deficits that were themselves caused by high levels of CAPEX and a long-established tendency not to pass increased production costs on into selling prices.  These persistent corporate sector financial deficits were in turn financed by banks at essentially subsidized lending rates, a situation that further implied that households and other savers had to be ‘financially repressed’ (i.er. real interest rates were generally held at very low levels and there was also a severe lack of alternative savings vehicles to the conventional deposits that the banks needed to create - and therefore need people to hold - in order to provide the necessary credit to the corporate and public sectors. 

In theory, these non-profit-maximising economies that also did not (really) use the price mechanism to allocate resources should never have been allowed into the GATT / WTO systems, given their model’s basic incompatibility with the Western Mixed / Capitalist systems.  However, for geo-political reasons Japan’s rapid re-development in the 1950s had been aided by the West’s sufferance of the under-valued JPY and in the same vein the West also welcomed Korea, Singapore, Hong Kong and Taiwan for reasons that were not solely economic in nature.  Moreover, following the fall of the Berlin Wall and an outbreak of hubris amongst Western policymakers, yet more countries in Asia - including of course China’s immense economy -  were welcomed into the world trading system despite their theoretical incompatibility.