At the middle level of development, information networks that sustain small economic activities in non-contractual and relation-based societies would no longer be able to support contract enforcements in large economies. Although state institutions are needed, the scale of activity is not yet large enough to justify the cost of establishing them, rendering the formation of contractual and rules-based societies a failure. Moreover, there are political obstacles associated with people who have sunk stakes in the old system, preventing the establishment of a new system.
Emil Salim, chairman of Indonesia’s Presidential Board of Advisors, foresees an unbalanced Asia in 2050 between the Asia 8 — India, Indonesia, Japan, Malaysia, China, South Korea, Thailand and Vietnam — and the rest of Asia, as dictated by market-based economies. Growing inequality within the countries — between a highly developed urban-based West Indonesia and an underdeveloped East Indonesia; the rapidly modernised coastal areas of east China and poverty-stricken western-most region of China; and among Indian States with strikingly diverse poverty rates — is also foreseeable. So, is Asia moving in the wrong direction? Or should Asia look more to an equitable and sustainable trajectory?
We also see ‘two faces of Asia’ on elements other than economic growth — the first face consists of Newly Industrialised Economies (including Hong Kong, South Korea, Malaysia, Singapore, Taipei and Thailand) plus China and India, while the second face consists of resource-rich, low-income, and less developed countries as well as the small states of Asia. The ‘Asia’s Development Agenda’ symposium stressed three agendas to bring more equitable development between the two faces of Asia, and within country: AID for Trade, Financial Inclusion, and the Social Safety Net.
The critical issues for a rising Asia are institutional issues: social norms and culture — issues that are downplayed by many economists. Kaushik Basu, in his new book, Beyond the Invisible Hand (2010), argues that social norms and culture are as important as law. This can be easily understood if we accept the fact that human beings are social beings — we react to what others do and most of the things we do are shaped by the cultural and social environment in which we live. ‘Equilibrium differences’ are greater than ‘innate differences.’ This is why Asia’s jewels — China, Indonesia and India — may be trapped in a ‘low equilibrium,’ with poor social attitudes reinforcing people’s behaviour, shackling their rise as market-based countries because of poor institutions, governance and political environments. The threat of a ‘middle-income trap’ is real.
One other important issue is the regional and global cooperation required to build a more equitable and sustainable Asia. The foreign policies of China, India and Indonesia have been outward-looking and the stakes are high: India hosted leaders from all five permanent members of the United Nations Security Councils last year; Indonesia will host the first expanded East Asian Summit this year with two new members, Russia and the US, and with a possibility of hosting the G20 Finance Ministerial and Central Bank Governors’ Meeting in 2013; and Chinese President Hu Jintao’s 2011 visit to the US has set the basis for the coming decades of a bilateral relationship, the stability of which is of global importance. ‘Soft-power’ policies from the region are a priority. Mahendra Siregar, Indonesian deputy Minister of Trade and the Indonesian G20 Sherpa, reminds us that Asia’s outward looking strategies should be geared toward reorienting our focus to how Asia can contribute to the global economic recovery, and not vice versa.
Without these elements a ‘rising Asia,’ hidden behind high economic growth figures, will be merely a chimera.
Maria Monica Wihardja is a researcher at the Centre for Strategic and International Studies, Indonesia and is a lecturer at the Department of Economics, University of Indonesia.
A version of this article was published in The Jakarta Post on 2 February 2010.