Is it possible that the trajectory of Asia’s rise may not be
as steep as prophesied?
This is a valid question, considering the recent news of
both China’s and India’s economic slowdown. In fact, there are ample reasons to
question the long-term economic course of Asia’s most populated countries.
Two separate yet inter-linked factors should guide any
discussion on the rise of Asia.
First, there are three Asias with greatly varying degrees of
economic development: 1) the populous and fast growing China, India, and Indonesia;
2) the slower developing southeast Asia; and 3) the industrialized and
developed east Asia of Japan, Korea and Taiwan.
Second, Asia’s rise will not be judged by the speed of
economic growth but rather by the inclusiveness of growth and the level of
inequality in its societies. Historically, these factors have been more
balanced in the east Asian countries.
The essential factors of long-term economic development make
the difference and they do not come overnight. The capacity to innovate requires
enduring national planning, targeted pooling of national resources and
cooperation between the public and private sectors.
Historically, economic growth in developed western
economies, and in the three east Asian economies, has been supported by
dependable institutional foundations. Stable political systems, regulation,
rule of law, and crucial protection of intellectual property have provided a
favourable environment in which businesses innovate, grow and prosper. In
China, India, and Indonesia, these crucial elements of governance continue to
evolve.
Presently, the demographics favour these countries. But the
structural reforms needed to sustain high economic growth may prove difficult
to achieve. The leap from low to middle income economy and beyond requires more
than export-led growth that is based on low-skilled manufacturing and
commodities trade.
State capitalism has worked well for China as the state-led
banking sector has provided the necessary support for economic growth. Yet income
inequality and corruption continue to worsen. Old-fashioned patronage and
guanxi – the essential “connections” for doing business in China – are becoming
counter productive in the face of growing wealth among a privileged few.
The corrupt political elite appears ill-equipped to change
course. Corruption looks too deeply ingrained in the system.
In India, a polarized political system and notoriously
ineffective and corrupt bureaucracy provide little confidence. One result is
the country’s inability to provide the majority of its citizens with the most
basic of human needs. To this day, half a billion Indians live without access
to clean water or electricity. As the OECD’s 2011 report on inequality
indicates, income inequality has only worsened in India over the past 20 years.
In Indonesia, democratization has failed to break the layer
of old elites that today control 40 per cent of the country’s natural resources
and wealth. This combined with strong nationalist and protectionist sentiment
puts a brake on the country’s political and economic development. The emergence
of a sizeable, well-educated and skilled middle class is not guaranteed.
Worryingly, Indonesia’s educational system is ill-equipped to transform the
country’s labour force from low-skilled to high-skilled. Indonesia ranks in the
bottom 10 per cent in every category of the OECD’s Program for International Student
Assessment (PISA) rankings.
The promise of the “Asian century” rests on the troika of
China, India, and Indonesia. They form the core of Asia’s economic potential. The
extent to which they are able to enact structural reform will define the
region’s future.
Problems of questionable governance, corruption, education
and demographics will not be solved by economic growth alone. Their resolution
requires a ‘social contract’, a tool for national cohesion that will pull all
national resources towards a common goal of building thriving, modern Asian societies.
In societies where the old patronage style of governance and
cumbersome bureaucracy are in control, such a ‘social contract’ may be too much
to hope for. The Financial Times By Mika Purra of StraitsGlobal.The writer
manages StraitsGlobal, a risk management advisory firm in Singapore. He was previously
a research fellow at the Lee Kuan Yew
School of Public Policy.
School of Public Policy.
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