The global financial crisis that began in July 1997 was the start of a gloomy, embarrassing period in the pin-striped world of international economics. Experts and officials had to acknowledge that they first failed to see what was coming and then made bad things worse.
But now that the crisis seems to be abating in some places, these economists have shaken off the criticism and begun to spin gleaming new theories from the lessons learned in Thailand and other severely affected countries.
It's I-can-see-clearly-now time, in short.
This debate is in part an attempt to pull something useful from the wreckage of several once-emerging economies. But it's also an attempt to establish new global economic ground rules for the beginning of the 21st century.
That's why Japan, long irked by America's post-cold-war push for worldwide free markets, is vigorously encouraging the new discussion.
Japanese officials seem eager to seize the opportunity to promote their economic thinking, which emphasizes the need for governments to guide and control what markets do.
With the support of Japan's Ministry of Finance, the World Bank convened a conference in Tokyo March 1 and 2 to discuss two innovations in post-crisis economic thinking. The first - the call for a "global financial architecture" that could prevent crises caused by sudden shifts in the worldwide flow of money - has been under discussion since last year.
The second is just off the copier. World Bank President James Wolfensohn proposes a more comprehensive approach to development than the checkered attempts of rich countries to help poor countries get a little richer themselves.
Linking aid to effective government
Mr. Wolfensohn says he wants to broaden the idea of development to include the promotion of clean government, the creation of effective justice systems, and other issues that aren't strictly economic but directly affect nations' economies.
What links these two ideas isn't immediately obvious - global finance and international development are typically discussed in separate forums. But Wolfensohn argues that the push for new international financial regulation ought to be accompanied by consideration of development.
Another tie between the two topics is Japanese interest in them. Eisuke Sakakibara, Japan's vice finance minister for international affairs, says that steps toward a new financial architecture are the necessary response to a crisis caused by unrestrained capital flows. "Please don't misunderstand," he adds. "We think the market is the single most important institution that we have at this moment. What we have criticized is what could be called 'market fundamentalism,' " his term for US economic policy in recent years.
Japan, the world's leading donor of development assistance, also appears to be lining up behind Wolfensohn's proposal. As a nation constitutionally barred from exercising power through military force, Japan has long sought to raise its international stature by promoting and funding improvements in other countries, particularly in Asia, so development is a topic Japanese officials take seriously.
Bank officials took pains to clarify that Japan had no role in the origin of the proposal. "I think that if the Japanese government supports the 'comprehensive development framework,' it is going to be because they think it is a good idea and not as a matter of international policy [in] either confronting or agreeing with the US. We do not yet know what the US thinks," says Wolfensohn.
The bank president says his proposal is occasioned by the crisis but motivated by the realization that the world is not winning the war on poverty. "We have been losing," he says. "The number of poor people is rising ... inequity is increasing not diminishing."
He also credits the work of Amartya Sen, the 1998 winner of the Nobel Prize in economics, and a scholar who has criticized the notion that political freedoms should take a back seat during the pursuit of economic development.
During a speech at the Tokyo conference, Professor Sen argued that expanding political rights and other freedoms are the best means to development - and that freedom should also be seen as the ultimate end of development.
Wolfensohn, the head of an institution whose charter forbids it from engaging in political activity, cannot go that far. But he does say that the bank addresses the same issues that political groups raise - inequity, poverty, access to education or health care - in a different way. "We don't confront [them] using political language."
He repeatedly acknowledged at the conference that his ideas are not new; theorists have been advancing them for years. What is new is that the president of the World Bank is saying them.
But comments at the conference by a Chinese Ministry of Finance official, Pan Xiao Jiang, illustrated one of the roadblocks that Wolfensohn's proposal may encounter. While personally praising an approach to development that looks at a country's development holistically - making sure that, say, some officials or private groups are constructing a social safety net while others build roads and still others take steps to protect the environment - Mr. Pan also offered warnings about ventures into "non-economic" or "political" areas.
Underlying the discussion of both Wolfensohn's "framework" and the need for regulatory responses to the financial crisis was the recognition that American-style free-market policies are seen as finished. "There's been a huge mind change in the consensus," says Joseph Stiglitz, the World Bank's chief economist.
Even Stanley Fischer, who as the first deputy managing director of the International Monetary Fund is no enemy of free markets, says an "ebb and flow" is underway. Cautiously, he adds, "possibly there is a slightly greater emphasis on what governments can do."
That sentiment is music to Japan's ears and Mr. Sakakibara in particular seemed unable to restrain himself from smiles of satisfaction when conference participants voiced such views.
That may be because of a feeling of vindication. When the global financial crisis first erupted, it was called the Asian crisis and many analysts immediately blamed the trouble on something called the "East Asian economic model."
Espoused by Japan, this theory says that government should guide development, if necessary protecting key industries from competition and relying on bureaucratic wisdom rather than market forces. Some version of this strategy had been embraced by three crisis-hit Asian countries: Thailand, South Korea, and Indonesia.
This type of capitalism, the critics argued, led to collusive arrangements between government and business, corruption, and weak financial institutions - conditions present in the three Asian crisis countries, and, it has to be said, Japan.
But since then, the analytical focus has turned against the US and particularly the Treasury Department, which have assiduously promoted the free flow of capital and goods as the best means to global prosperity. Now most analysts agree that the sudden shift in capital flows - when foreign investors and lenders yanked their money out of countries - was the most important culprit in the crisis.
And when the crisis spread to Russia and Brazil last year, it took Japan's model off the hook. There was reason to conclude, says Takatoshi Ito, a US-trained economist at Hitotsubashi University in Tokyo, that "Asians should not be so depressed about what happened in Asia. This kind of thing could happen anywhere."