Australia is currently reflecting on the role it should take in the ‘Asian Century’, no doubt prompted by the European and US financial crises. But looking ahead, there are significant threats to the sustainability of Asia’s high growth path — threats that Australia must take into account when deciding whether to increase its dependence on Asia in the century to come.
Asia has managed to stun the world to date with its rapid reduction in poverty, and the rise of its middle class. But rapid development has also revealed various problems, including over-dependence on exports to Western markets.
Asia’s successful economies have generally relied on export-oriented growth, buttressed by high domestic investment. The limitations of this model are evident in Japan, whose economy has been in a deep funk for two decades. Japan never made the transition to a domestic demand- and innovation-driven economy. Rather, it spent its way to a massive public debt, and failed to prepare itself for the burden of an ageing population. Other Asian countries face the more difficult challenge of rebalancing their growth away from Western export markets at an earlier stage in their development. Many, like China, also have very rapidly ageing populations — but in contrast to Japan, China will become old before it becomes rich.
Rapid urbanisation is also an important driver of growth, as people move from rural to urban areas, and shift from low value-added agriculture to higher value-added manufacturing and services. Hong Kong, Singapore and Tokyo have succeeded in becoming global centres of finance, business and culture. But there are also downsides to urbanisation, such as higher rates of crime, violence and instability, which can undermine economic growth, as in Dhaka, Jakarta, Kolkata and Manila.
Inclusive growth is important for equitable development. But in many parts of Asia the gaps between rich and poor are widening, causing too many people to be excluded from opportunity through inadequate access to education and health services. In many countries, groups such as women, young people and indigenous peoples are also excluded from opportunity through discrimination.
Effective democratic governance, which many development theorists argue is essential to becoming an advanced economy, has very shallow roots in Asia. Only Japan, South Korea and Taiwan have mature, well-functioning democracies, for example. Weaker democracies like India, Indonesia and the Philippines are riddled with corruption and bureaucratic red tape, which undermine the business-investment climate. The Chinese Communist Party has proved to be very effective in mobilising resources for development, but it stands to be closely scrutinised by an increasingly prosperous, well-educated and well-informed population that wants freedom and is not likely to condone corruption and human rights abuses. Ineffective governance also allows for the rise of international economic crime in the form of human trafficking, money laundering, counterfeiting and piracy, and multiple forms of cyber-crime.
Regional cooperation is essential for peace and prosperity. Asia has many examples of successful cooperation such as high levels of intra-regional trade and investment, a proliferation of free-trade agreements, and a multitude of regional organisations including the ASEAN community, APEC and the EAS. But the region is bristling with tensions due to lingering historical ill-feeling toward Japan, disputed borders between almost all Asian neighbours, and increasingly conflictual relations between China and its neighbours in the East and South China Seas. While no one wants war, there is ample historical evidence to fear the worst.
In the global arena, Asia has still not made its mark effectively, despite its potential for great contributions. Japan has often been a passive participant. China is too preoccupied with maintaining domestic stability to take a lead globally. India remains a feisty, though perhaps not very effective, participant in global discussions. In contrast, South Korea is demonstrating a capacity for global leadership on issues such as green growth, information technology and education.
The development challenges facing Asia remain enormous, with half the region still living on less than US$2 a day, and the majority of its much-vaunted middle class in the lower middle-class category, with levels of consumption in the order of US$2–4 a day. Soon enough it will become clear that these fractures in Asia’s development models affect not only the quality of growth, but may limit the quantity of growth too.
The threats to the sustainability of Asia’s high growth path should prompt Australia’s business and government leaders to refrain from putting all their eggs in the Asian basket, and diversify away from their China-centric approach. The Australian government should also make better efforts to capture more of the ‘rents’ of the resources boom, and invest them in other national assets like education, infrastructure, and research and development. Moreover, business and government need to engage more seriously with the whole region. An ‘Asian century’ is more likely to be realised if the quality of political and economic governance can improve dramatically.
John West is editor-in-chief at MrGlobalization. He previously worked at the OECD and the Asian Development Bank Institute.
While caution is never a bad thing in terms of preparing for the future especially when the challenges Asia will face in the next two to three decades are enormous, one also should not be overwhelmed by those uncertainties and overshadowed by excessive caution and fear of future.
Undoubtedly Asia has its problems to overcome in its path to prosperity. However, one should not automatically take the view that Asia will definitely follow the model of development and growth that current industrialised economies have done in the past.
Asia with its very large countries in terms of both populations and land, should have considerable room to the necessary adjustments if the previous export (to west economies) led model would not be able to sustain its further expansions. Both domestic and intra-Asian trade may be able to provide a new path of growth.
Corruption is and will be a serious problem. It will need much greater efforts to stamp them out or limit its extent.
Democracy and rapid development can be both achieved in Asia. However, democracy may take a different form. Even Europe and the US can have some differences in their governmental structure and how democracy plays its role in determining the government of a country.
It’s good to see someone attempting to cut through the hype surrounding this topic. I cringe a little everytime I see the unsaid term.
Thank you James for your comment. Over the past few decades, there have been many waves of hype or irrational exuberance which have preceded crises.
If we want to see the next crisis, it seems that we need only look for where the hype is.
I would like to thank Lincoln for his thoughtful comments with which I have great sympathy.
I would however like to note that many Asian leaders are also concerned about the region’s situation and future. For example, Chinese Premier WEN Jiabao has said on many occasions that China’s economic growth path is “unbalanced, uncoordinated, and unsustainable”.
It is mainly Western observers who are starry-eyed about the Asian Century prophesy.
EAF is a source of high quality rigorous analysis so I wonder why you post Mr West’s piece, so full of non sequiturs and flawed logic as it is. Asia is already of global consequence and the rest of the world is trying to comes to terms with that economically and politically. And it continues to become more so. Hopefully Mr West’s failure to appreciate this reality is why he no longer works for the OECD or ADBI. There is much evidence on this site of clear-sighted understanding of all the problems associated with Asia’s success. But does that mean that the scale of it, the opportunities it presents and risks associated that have to managed don’t have to be dealt with? That’s precisely what ‘all the hype’ is about, Mr West; but you don’t seem to understand that.
I agree with periscope. Mr. West’s analysis are most of the times only at the surface level. He need to have deep understanding on the matters he is writing and most importantly analyze properly.
I would like to thank “periscope” and “Bhushya Kukkur” for their comments.
I would however like to refer them to the Asian Development Bank’s excellent publication “Asia 2050”. ADB President Kuroda, in his foreword to this publication, quite rightly says:
“Many see the ascendancy of Asia — or “the Asian Century” — as being on autopilot, with the region gliding smoothly to its rightful place in destiny. But complacency would be a mistake. While an Asian Century is certainly plausible, it is not pre-ordained. When examining the region’s economic and social prospects, one cannot help but notice its many paradoxes.”
He then goes on to note that: vast numbers of Asians are illiterate and unemployed; the region urgently needs massive investment in infrastructure and social services; Asia’s financial sector remains largely underdeveloped; Asia cities are becoming unliveable; and so on.
That Mr Kuroda and many others observe that the Asian Century is not on autopilot, with the region gliding smoothly to its rightful place in destiny is precisely the point. Complacency would be a mistake. While an Asian Century is certainly plausible, it is not pre-ordained. And there are many paradoxes — vast numbers of Asians are illiterate and unemployed; the region urgently needs massive investment in infrastructure and social services; Asia’s financial sector remains largely underdeveloped; some Asian cities are becoming unliveable.
The recitation of none of this contributes to analysis of what has happened in Asia, what might happen in the region and under what circumstances in the future.
Be wary not-so-much-beware, perhaps;
however do not overlook the incredibly beneficial Asian cultural background, also.
Let’s not sit on our ‘Western High Horse,’ however, thinking that we are the ones to fear the East, because I suspect Asia is doing enough fearing of it’s own – that Western materialistic practices are increasingly threatening the very fabric of their cultural heritage.
I am born a ‘ foreigner,’ yet hopefully the West will learn from Asia and not just use its populace to its expand own wealth.
This is a surprisingly good article although it is unfortunately a little shallow, and I suspect represents the authors personal view. Nonetheless, it has hit on something solid.Asian economies are built on the “sands of exports” and not on the “solid foundations of domestic consumption”. All that has to happen is people in the West stop buying products from Asia and you have
“interesting times.”
As if the region doesn’t know that… China’s internal market is growing faster than exports with pay rises now pushing city salaries 3 times that of rural, creating your domestic market. This review is eerily similar to many written a decade ago… be wary sure but don’t underestimate the scale of what is happening and opportunity. After all the west is already in the crisis being suggested.