Leading article: Our humble offering to the East: the secret of success

Should we gloat? After years of being told that the Anglo-Saxon model of capitalism was out of date, and that salvation lay in slavishly copying the Tiger economies of the East, we see South Korea in deep, deep trouble. No, we shouldn't gloat, partly because gloating is unattractive and partly because our own system is so far from perfect. Perhaps, instead, we should lament, because of the investment consequences for British workers who had hoped for Korean-backed jobs. But certainly, we should look and learn the lessons of what is shaping up to be a very nasty economic smash indeed.

South Korea's problems will not be cured by the recent change of government there, nor by an IMF bail-out. It won't be cured either - though this thought has been seriously entertained in some allegedly geopolitically sophisticated quarters - by some sudden invasion of the South by Comrade Kim Il Jung's war machine, forcing Seoul to get its act together. The President-elect Kim Dae Jung says they never told him things were as serious as they are. Hardly surprising: for what is wrong in South Korea is the system, an entire network of dependencies between firms, banks and the political class, and beyond them organised labour with its expectations of jobs and rewards in an industrial sector that is, to put it perfunctorily, half bankrupt.

The blunt fact is that the Korean post-war system does not fit the world of the 21st century. Changing will be painful. The political fall- out from the International Monetary Fund's demarche in South Korea has yet to register - think of Britain's trauma in the mid-Seventies when the Cabinet sat to take dictation from the world bankers, and then multiply that. This time, the IMF loan is only a starting-point. Next year, and many years to come, will see a drastic restructuring of both social and economic relationships within South Korea. Autarky is not an option, as the merest glimpse through the wire northwards towards Pyongyang is enough to show. Somehow the Korean political class will have to find the resources to force nation and economy to take and keep on taking some nasty medicine.

Meanwhile, we are not idle spectators at Korean and Japanese convulsions (and let us all hold our breath for China). That stock phrase of the decade, globalisation, is now seen to have concrete meaning for the workforces of South Wales and Tyneside. It means Lucky Goldstar or the other Korean conglomerates reconsidering investment projects. And it is not just industrial workers who are going to be caught in the Korean knock-on through Tokyo to Wall Street: whose pension fund does not contain stock vulnerable to decline and fall in one of those markets?

And yet - to say this risks hubris - the British system appears in its fundamentals in relatively good shape and as such offers - meekly offers - a lesson or two. This is no compliment to Gordon Brown or even to Kenneth Clarke but perhaps, yet again, a tribute to the necessity of Thatcherism. Though we are still counting the considerable social cost, the British economy did survive a necessary trial by liberalisation. It hurt but it worked. True, we can hardly claim a bill of health that does not have large doctors' queries on it. The flow of capital through the banks into productive investment is far from perfect; there does seem to be a national preference for short-term profitability over corporate (and employment) growth.

None the less, Big Bang worked. It sharpened financial performance and make relationships between savers and investors more transparent. It destroyed the remnants of the closed corporatist world. What you see - critically - in terms of decisions by politicians, regulators and central bankers is largely what you get. If most of Britain is having a good Christmas, that is partly why.

In Seoul and Tokyo, though, non-transparency has been the post-war norm, along with a belief in the capacity of governments to make and move markets. We need to be careful in our use of language. Some find it all too easy to mount the pulpit steps and start preaching liberal epistles to the Confucians. There is an incipient danger of racism at worst and, at best, of fate-tempting arrogance in suggesting that we, the West, have the key to their salvation. They alone possess that. The Japanese economy in particular is a big and powerful beast which, if sluggish, may spring again.

It is indeed to Japan that attention starts to turn even as markets collapse and politicians weep in Seoul. When will the Japanese lay hold of their regional responsibilities? A Korean collapse affects Japanese trade and investment much more seriously than those of any other country. Yet Japanese capacity to advise and assist Seoul is hampered not just by the burdens of history but Tokyo's willed immaturity in diplomacy and defence policy. What is so clearly missing in Japan is a younger generation, in economic life as much as in party politics, angry and energetic.

What has come over us? Christmas Eve beckons and we're blathering about Japan? Yes, because a central lesson for the year ahead is that today the economics and politics of the ``Far'' East are actually very close to home. Their success or failure touches our own lives and prospects. But politically and culturally they are much misunderstood and little studied. The agony of Seoul doesn't touch us quite as it would if the crisis was happening in Paris or Toronto. But that's out-of-date thinking: our prosperity partly depends on how successfully, bravely and quickly these too nations reform themselves. In the year ahead, they will need all the luck and courage they can muster.