Asia has been celebrating a lot of anniversaries recently. Bank Negara Malaysia marked the 60th anniversary of its establishment this year while, China, on Oct 1 celebrated the 70th anniversary of the founding of the People’s Republic of China (PRC). Today, we take Asian prosperity for granted. But I was reminded at a recent history seminar that in the 1960s, East Asia was poor, rural and full of uncertainties.
Swedish Nobel Laureate Gunnar Myrdal began his magnum opus on Asian development, called Asian Drama: An Enquiry into the Poverty of Nations, in 1957 and only finished it in 1968. His review, mostly of South Asia, was gloomy, observing that growth was slow because Asian elites did not address the issue of corruption between the objectives, formulation and implementation of development policies. The economist could not have foreseen that 50 years later, India would overtake China as one of the fastest-growing economies in the world, even as the two large nations begin to lift billions out of poverty.
If India was struggling then, China in the mid-1960s was isolated and in the throes of the Cultural Revolution. At the founding of the PRC in 1949, estimated average incomes in the country were perhaps 20% lower than those in India. Up until the late 1970s, China was isolated economically, technologically and politically.
In 1962, Japanese economist Kaname Akamatsu formulated one of the best-known paradigms to describe Asian development — the “flying geese model”. Japan was the lead goose — the first to embark on modernisation 100 years ago with the Meiji Restoration of 1868 and to begin industrialisation. As Japanese labour costs increased, production was picked up by the Four Dragon economies of South Korea, Taiwan, Hong Kong and Singapore. These were the first to break through the high-income barriers after Japan. Following them in the “wild geese formation” were the Four Tigers — Thailand, Malaysia, Indonesia and the Philippines. After the Asian financial crisis of 1997/98, which affected all four Tigers, South Korea and Hong Kong, China began its upward climb. Today, we are witnessing the rise of the newly industrialising countries that have joined the Asian global supply chain, namely Bangladesh, Vietnam, India and Cambodia.
Commemorating 50 years of the founding of the Asian Development Bank (ADB), Australian economist and corporate biographer Peter McCawley pointed out three distinct themes in Asian development — transformation, resilience and stability.
The theme of transformation is common knowledge. Asia accounts for half of mankind, and it was East Asia, led by Japan ,that began its mental and then physical transformation. But this was because the victor of the Second World War, the US, decided after the Korean War to rebuild Japan as a bulwark against Communist China. With access to the American market, Japan built the Asian global supply chain, becoming one of the most successful consumer product manufacturers in history. That export-oriented manufacturing model was adopted and copied throughout East Asia, but was slow to take root in South and Central Asia.
China adopted the open, export-oriented model after 1978, and India followed in 1991. These two giants have not looked back since.
Although McCawley pointed to the importance of resilience, it was perhaps the diversity of traditions and cultures, linked by the common theme of economic development before politics, that made Asia adaptable and flexible. The more successful countries were less ideological, more pragmatic and more focused on self-strengthening, with a devotion to education, especially science, technology, English and mathematics (STEM). Asians encountered many economic, financial, cultural or political shocks, but they bounced back.
Perhaps because the region was born out of war and conflict, there was almost an obsession with peace and stability. One common theme was basic conservatism with respect to monetary and fiscal policies. Asean was born out of the desire to avoid the Vietnam War that was spreading in the region, and in 1971, adopted a declaration to create a Zone of Peace, Freedom and Neutrality, or ZOPFAN. By and large, countries took heed of inclusivity and political stability. They achieved this by giving attention to education, infrastructure and better health and medical services. Earning dollars from exports helped finance much of the investments. Taking sound advice from the Bretton Woods institutions, joining global trade compacts and receiving soft loans from development banks like the World Bank or ADB helped. Step by step, the region became a cluster of growth poles, learning from and complementing each other.
What happened in the decade after the global financial crisis of 2007 was nothing short of a miracle. China emerged as the second largest economy in the world, and India took over its place in terms of the speed of growth. Asean, with a population of over 600 million and US$2.5 trillion in gross domestic product, continued to power ahead. As Chinese labour costs rose, cheap-labour industries were shed to Bangladesh, Vietnam, Indonesia and Cambodia, enabling them to pick up speed. Asia today accounts for a third of world GDP and half of world growth. Most estimates suggest that by 2030, Asia will account for half of world GDP as more nations head towards advanced-income status.
Whether Asia will once again attain dominant status in the world economy, as it was before the Industrial Revolution, is neither preordained nor inevitable. Global finance, technology and military power are still in the hands of the West. The headwinds against fast growth are getting stronger because of more trade conflicts, struggle for technological hegemony, deteriorating climate change, natural disasters, ageing populations and rising expectations and frustrations.
Myrdal’s warning about how the elites forget to take care of the masses and Mother Nature because of corruption and political capture is coming back into focus.
Part of the growing inequality is global in nature — unrealistically low interest rates generated by quantitative easing in the advanced countries create asset bubbles that benefit the rich more than the poor.
But the flying geese are now cruising in a very different context. In the 1960s, there was pristine air and water but these days, the geese need gas masks to fly through the haze and pollution from burning forests and congested cities. The natural wetlands they used to head for during winter are now polluted industrial wastelands. If Asians consume natural resources and emit carbon dioxide like the average American or European, the world would run out of natural resources fast. We live on the SS Planet Titanic, heading towards existential disaster, unless Asians wake up to turn the ship around.
As many parts of Asia age, what will it look like at 100? This is a question all of us should be asking and thinking about.
Tan Sri Andrew Sheng writes about global issues from an Asian perspective