Rashid A Mughal
THE spectacular economic development in Asia has surprised many western economic experts and leaders alike. Perhaps they thought the World War-II ravaged countries after 1945 will be in a shambles for decades to come and will be perhaps dependent on Western donors to run their countries. What has practically happened is shocking for some and eye-sore to a few too. Japan’s very rapid recovery from the ashes of World War-II took the world by surprise. Many economists were then pessimistic about the prospects for Asia which suffered greatly from the war. The continent had a few natural resources and an enormous population compared with Africa and South America. But as Japan’s growth continued, many then believed that Japan would overtake the US, in much the same way that the US overtook the UK in the 19th Century.
Japan’s economic dynamism inspired the four Asian Newly Industrializing Economies—Hong Kong, Korea, Singapore and Taiwan—on a similar path of rapid development. This gave rise to talk of an “Asian miracle” by the World Bank and others, and the group was labelled the Asian tigers. Much ink has been spilt in analyzing the rise of these Asian economies. The main factors were their export-orientation, good education, macroeconomic stability and strong government leadership. But as Ian Buchanan, a US scholar, has argued, geopolitics also played an important role in the context of the Cold War, as the US offered official assistance and open markets to its friends in Asia. And all of these successful economies were motivated to become strong in the face of their threatening neighbourhoods, as they faced Mao’s China, North Korea and the USSR. But the shortcomings of the Japanese model became all-too-apparent following a financial crisis in the early 1990s. Japan (and Korea and Taiwan) has since failed to both reform its economy and deal with demographic decline.
The prospect of these economies catching up to world leaders now seems remote. Singapore and Hong Kong are rare birds in Asia, in that they have caught up to the US and Germany, and in Singapore’s case well overtaken them. There are some very simple reasons. Both are Asia’s only two genuine open market economies, with large immigrant populations, in contrast to Japan, Korea and Taiwan. They are also financial centres and tax havens, which allow Asia’s super rich to hide their (often ill-gotten) wealth from the taxman. When these city economies are compared with other financial centres like London, New York or Switzerland’s Zurich, their success seems much less surprising.
The next group of Asian economies to take off in the region’s “flying geese” pattern of development, included Malaysia, Thailand and Indonesia, Bangladesh and now Vietnam and Cambodia too. Their rapid development was mainly driven by a wave of investment from Asia’s advanced countries, which off-shored lower-value-added activities as they climbed the development ladder. But the education and technological capacities of these countries are relatively weak, and their economic catch up to date remains modest. These countries would seem to be caught in a “middle-income trap”, meaning that they are unlikely to graduate from middle-income to high-income status. Of the many above success history in recent times, two stand out: China and India. The two countries are by their sheer size economic giants and while they grow at the rates observed in recent years (decades in the case of China) it is obvious that their transformation will have profound effects, not just internally but for the rest of the world. Such effects, already in evidence, are a combination of new market opportunities arising from enhanced purchasing power and greater competitiveness of these mega-economies as producers of selected products. It is important to assess the likely impact in order to put in place policies and strategies that anticipate the changes so as to best capitalize on emerging opportunities, while also attenuating whatever anomalies could arise in subsectors that cannot meet the challenges.
Much has been written about China and India recently. The two countries have experienced very rapid growth which has resulted in notable achievements, particularly reduction in poverty. They also share common problems associated with rapid growth such as the widening rural-urban income gap and environmental degradation. Rising incomes create impetus for structural change in the agriculture and food sectors as demand and consumption patterns shift; concomitantly the impact will extend to trade, commerce and investment. Both China and India have experienced impressive growth in agriculture, a Green Revolution, followed by rapid industrial growth and a sharp decrease in relative poverty. But the preconditions and the driving forces behind the growth were in both cases very different. For each country the policy and institutional changes that have led to these transformations, have played a major role.
When we compare and contrast China and India in terms of prospects for future growth, the likely impact that this growth will have on their domestic economies and the impact on other Asia-Pacific countries, we find enormous potential and influence that these countries will attain. China and India have a combined population of 2.3 billion people, about 37 per cent of world’s total. A 100 dollar increase in the per capita income of these two countries would translate into about 230 billion dollars in additional demand for commodities. The continued growth of these two populous countries will, therefore, significantly affect the balance and direction of trade, trading opportunities and level playing field for smaller countries in the region. It calls for timely diagnosis of the growth pattern in these emerging economies in order to put policies in place to optimize gains and minimize losses and marginalization.
— The writer is former DG (Emigration) and consultant ILO, IOM.
