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European twilight, Asian sunrise

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In Brief

The last economic era, roughly from 1980 to 2008, was the most successful combination of globalisation, growth and prosperity in history.

The West benefited, but, more importantly, this was when ‘the Rest’ came on board: ‘underdeveloped countries’ cast off post-colonial isolation and embraced the world economy.

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But the recent global economic crisis induced sharp divergence of economic performance between the West and emerging markets. The US and most of Europe are stuck with anaemic growth while most emerging markets sailed through the crisis and are booming. This short-term divergence has accelerated the long-term convergence between emerging markets — particularly in Asia — and the West.

There is similar divergence in the global policy outlook. The West’s financial crisis and ‘crisis interventions’ have wrecked public finances. Financial bailouts, fiscal-stimulus packages and extra-loose monetary policy also provided cover for big government micro-interventions that distort competition and restrict economic freedom. Most emerging markets retain healthier balance sheets and have a much more promising outlook.

America is mired in gloom, but I have residual faith in the vitality of American society. I am more pessimistic about Europe. Too many European countries have overlarge public sectors, cosseted public-sector unions, bloated welfare states and an entrenched ‘entitlements’ culture, not to mention unsustainable debt levels. Too many people lack individual responsibility, are over-dependent on the state, lazy and decadent.

In the EU, necessary liberalising reforms have stalled and a Eurozone crisis rages. The European political elite’s response is not to undertake market reforms. Rather, it is a centralising, bureaucratic, almost command-economy-like response: fiscal-policy harmonisation that portends more Brussels bureaucracy, more intrusive regulation, higher taxes and ever-larger transfers to profligate governments in the European periphery. These are symptoms of European decline and the EU may be sleepwalking to disaster.

Asia, in contrast, is an awakening continent whose people are grasping newfound economic freedom with both hands. Market liberalisation over the last few decades, first in East Asia, then in South Asia, and including China and India, has unleashed the ‘animal spirits’ of ordinary people, particularly the young. Their commitment to education, work and self-improvement is seen everywhere. They are exercising their ‘natural liberty’ with gusto, and are transforming the world in the process.

Singapore is where ‘liberty outside the West’ got a massive boost with its founding by colonialist Stamford Raffles in 1819. His vision was of a ‘vast emporium’, fully open to trade and to migrants in search of work and enterprise. Of course Lee Kuan Yew’s Singapore differs from that of Raffles in many ways, but Raffles’ legacy survives: Singapore still practises free trade, open to the world’s goods, services, investment and people.

The last sixty years has seen a remarkable economic renaissance in East and South Asia. Commercial clusters in and around coastal cities are its economic lifeblood. Its networks are complex manufacturing and services supply chains linking them to global markets. It is in these mostly coastal strips — from the south to the west of India, the eastern provinces of China, coastal cities in southeast Asia — that liberalisation of markets, property rights, a burgeoning middle class and other features of commercial society are blossoming most. Hong Kong and Singapore are today’s Malacca and Makassar. They form the core of liberty outside the West today and point the way to its future expansion.

But market reforms have stalled in China, India and elsewhere. Domestic red tape continues to stifle emerging markets’ business climates and repress economic freedom much more than in the West, and all the major global rankings reflect this. Economic institutions and political systems remain relatively weak; they keep business costs high, repressing entrepreneurship and innovation. Emerging-market powers suffer their own divisions, such as the mistrust and rivalry between China, India and Japan. They are still reactive in global economic institutions. And they have high barriers to intra-regional trade, investment and the movement of people — a far cry from the EU and NAFTA. There is huge unfinished business, particularly to expand economic freedom outside the West.

The global economic crisis has ushered in a phase of illiberal ideas and policies, and set back the cause of economic freedom. I have some confidence that the intellectual tide will turn in parts of the West — it already has in the US. But I have greater confidence that the expansion of liberty — especially economic freedom — outside the West, especially in Asia, will provide even more tailwind. The future of liberty is shifting East; more than ever, it lies outside the West.

Razeen Sally is Director of the European Centre of International Political Economy, Brussels. He will soon take up positions at the Lee Kuan Yew School of Public Policy and the Institute of South Asian Studies, both at the National University of Singapore.

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