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Asia's economic and political interdependence

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In Brief

The famous Swedish economist, sociologist, politician and recipient of the Nobel Prize for economic science, Gunnar Myrdal, wrote a massive study of Asia's development prospects in the early 1960s called Asian Drama: An Inquiry into the Poverty of Nations. 

It presented a generally pessimistic view of the prospects of Asia's development, mired as he thought most of Asia was in the vicious cycle of poverty and trapped in an environment of bad internal and external politics.

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How those prospects have changed.

Many factors have been important in lifting millions of Asians out of abject poverty in the past half century — and a much shorter time in China — and while only a quarter of a billion Asians have yet acquired developed-country levels of income, more than two billion are moving more rapidly toward that target than Myrdal could have dared to dream.

Among the factors that were crucial to Asia’s economic transformation were strong government and strong government commitment to opening up the role of markets domestically and in external economic relations. Once the East Asian economies committed to open economic policy strategies, economic relationships across the region burgeoned despite an unusual number of heterogeneous political landscapes and troublesome political relationships. Diplomatic relations were not normalised between China and Japan until 40 years ago, and the China–Japan political relationship has had many ups and downs over the years — especially during the six years of Junichiro Koizumi’s prime ministership, at a time the bilateral economic relationship burgeoned. South Korea did not have diplomatic relations with China until 20 years ago. After the Sino–Indian war, Vietnam was isolated diplomatically by the United States until half a decade ago. And the political stand-off between Beijing and Taipei has been an ongoing feature of the regional political terrain since the Chinese revolution.

Despite the political and diplomatic tensions, East Asia’s economy has prospered and economic relationships thrived. Only North Korea and Myanmar have remained apart from East Asia’s spectacular economic integration. Up to this point, they have been a major source of regional security anxieties, though it appears Myanmar is about to change course. The positive economic relationships have also come to dominate conflictual political relationships.

Asia’s economies were huge beneficiaries of the open trading system that was set in place in the post-war period. In the early stages of their economic transformation, open markets provided them with an outlet for simple manufactures produced by their large pools of relatively unskilled labour. Their growth was initially driven by labour-intensive exports and with rising incomes, higher rates of investment in human and physical capital have allowed progress up the value-add chain.

The open system had other benefits, strengthening bilateral economic relationships — built on increasing trade flows and greater levels of integration — and acting as ballast in sensitive bilateral political and strategic relations. Growing regional economic interdependence has reinforced a more stable strategic and political environment in the region.

In this week’s lead essay Shiro Armstrong underlines the importance of the global trading framework not only in delivering large income gains from trade but also in improving political relations between China and Japan, two countries that have the third-biggest trading relationship in the world.

‘Japan and China are often seen as adversaries’, Armstrong points out, ‘locked into bickering and an historically antagonistic relationship’. They may be neighbouring economic giants but they would appear to have a host of unresolved historical issues to deal with and a natural rivalry for regional and now global influence. ‘But the rivalry and historical baggage no longer dominates the China–Japan relationship today’, Armstrong argues. The huge economic relationship that has grown between the two countries over the past two decades has changed the tone of their political relationship since China embraced the global trading rules and norms, under which Japan has operated with American support since the Second World War. The ‘scale and depth of the economic relationship is reshaping their political relationship in ways that underline its cooperative more than its conflictual elements’, says Armstrong.

Nor is the China–Japan relationship a narrowly bilateral relationship. It underpins regional growth and prosperity and plays a major role in the East Asian economic interdependence and the regional production networks that have created it. The bilateral relationship is nestled in a complex set of links led by trade and investment throughout the region. Regional economic partners cannot view their relationships with Japan in isolation of their relationships with China. And Japan’s relationships with them are closely bound up with China. Japanese firms — once manufacturing powerhouses confined largely to Japan— now produce over 45 per cent of their electronics output and 33 per cent of all their manufacturing output offshore, a very large portion of that in China. Like most international brands, Sony, Panasonic and the Japanese big-name brand products are put together in China and elsewhere in Asia, and products made in China frequently come with a Japanese name.

Tensions will continue to arise from time to time between the two big neighbours — as they did around the maritime incident of 2010 — but what stands out is that stronger economic relationships have reinforced a more stable strategic and political environment in East Asia. The relative stability of the region and the lessening of political tensions that has accompanied regional economic integration have importantly been secured within the framework of global economic institutions that made the growing economic interdependence possible.

And keeping the global system strong and open will remain the key to both the economic and the political pay-off from Asian integration.

Peter Drysdale is Editor of the East Asia Forum.

One response to “Asia’s economic and political interdependence”

  1. Many thanks for this, and for Shiro’s commentary you refer to. These two pieces suggest that there is a growing recognition of the primacy of the economic, certainly in East Asia, in strategic calculations, as it indeed should be. The Westphalian model of zero-sum inter-state rivalry in the pursuit of narrowly-defined national (security) interests may have outlived its utility in an era of deepening and widening inter-economic interdependence.

    Since most beneficiaries of the recent decades of development across East Asia recognise the advantage of maintaining a stable strategic milieu in which to pursue developmental goals, great-power conflict is unlikely to break out anytime soon. However, as the maritime/territorial disputes roiling the waters of the South China Sea have demonstrated, the potential for confrontations escalating to conflict is apparent and cannot be ignored without risking untoward developments. Defence white papers published in recent years by the governments of Japan, India and Australia, for instance, underscored this risk with some authority. Managing disputes in a non-zero-sum framework will demand statesmanlike visionary leadership beyond the ken of domestically focused populist politicians – a quality not evident in any abundance in the region.

    Ruling elites in even the most sophisticated of societies can do with empathetic but disinterested academic advice from analysts who bring intellectual rigour to bear on analyses, especially at a time when leaderships are in transition. As this is the case in the two most powerful trans-Pacific states today, your two essays are most timely and topical.

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