A century, or more than a century ago, the world could have been clearly divided into two categories – the haves and the have-nots, meaning, countries that possessed political freedom and stability and countries that did not. Initially, Asia largely fell into the “have-not” category. However, in the past 50-80 years, a large part of Asia successfully moved to the “have” category. Post independence, most Asian countries battled against various “enemies” such as, slow economic growth, population explosion, poverty and corruption, while trying to achieve a sturdy method of self-governance. During those difficult years, when Asia was still trying to stand on its feet, very few took notice of its attempt and many were skeptical rather than believing in Asia’s strength. Even the Nobel Laureates did not have a positive outlook regarding Asia. (Gunnar Myrdal, 1968) .The reasons expressed, especially South and South East, were serious issues, such as rapid population growth and health care plaguing the region. Ironically, today, in just a span of mere 50-60 years, Asia has strongly emerged as a power to reckon with, having the highest Gross Domestic Product in the World in terms of Purchasing Power Parity. How did Asia, that once was a struggling region, achieve this phenomenal progress in a few years time?
Historically, most Asian countries have had an abundance of natural resources, which was the main reason why most Asian countries were attacked and ruled by other more formidable countries in the past. However, till date, most of these new governments have still not been able to fully utilize these natural resources to its hilt, due to lack of funds to sustain research and innovation to preserve and exploitation taking place to these natural resources. For instance, Malaysia has a coastline, which was gradually getting destroyed. Lately, the country has successfully adopted a coastal area management program to remedy reducing mangroves, reducing shoreline, increasing pollution, which created the negative impact on reducing quality of life for people living on the coasts. It is only now that Malaysia has gradually made the best use of coastline to emerge as a tourist hotspot. Furthermore, Asia is home to almost 60% of the world population, with a huge proportion in the “employable” phase. The newly formed governments in Asia were successful in framing policies and proper procedures to facilitate development of business and trade, as well as simultaneously grabbing the right opportunities to ensure that their huge populations become a stimulant for further growth rather than a hindrance. For example, China became the manufacturer for the world while India became the service provider to the West. This commendable progress did not happen all at once.
Most of the rapid progress has occurred in South, East and Southeast Asia. Various factors have influenced and contributed to the rapid progress of Asian countries in different regions – each lay with its unique set of problems. The first of the lot to swiftly advance were the ASIAN TIGERS consisting of Hong Kong, Singapore, South Korea and Taiwan. During the 1960-1990 period of time, these countries maintained a growth of higher than 7%. Apart from transcendent government policies to aid development, the reasons for the accelerating development of the TIGERs were numerous; for Singapore and Hong Kong- their strategic location acting as a convenient port connecting different parts of the world. For Taiwan – foreign direct investment setting up factories to take advantage of low costs and in the case of South Korea – trade subsidies. All these economies also developed superior education systems of their countries, which resulted in a distinguished quality of workforce and emerged as developed economies. They were affected by Asian crisis in 1997 but they continued to hold an enviable economic position in the Asian region. 1960 onwards, Japan – the third largest economy in the world – also grew smoothly at an impressive rate. However, with the stock market and real estate crash in the 1980’s, the country has entered an extended period of stagflation.
China, which held one of the economic super powers of the ancient world, had slipped from its enviable position due to complications arising out of rules and policies adopted by the dynasties, which ruled China for over centuries. However, under the Peoples Republic of China regime, China started rapidly advancing in 1980’s when it opened its doors to foreign companies. Over time, due to their cost advantage, they became the factory of the world. They also focused a lot on ameliorating farm productivity, which was imperative to their then primarily agrarian economy.
For India, progress started with the rapid liberalization policies adopted in the 1990’s and the birth of Information Technology revolution. The availability of English-speaking skilled workers resulted India to be the outsourcing hub of the world. Similarly, economies of Indonesia and Malaysia have also advanced. Of the 48 Asian nations, few others including mineral rich countries in the Central Asia such as Kazakhstan are making good progress in today’s age.
As mentioned above, there are diverse reasons for the precipitated development of Asia. However, the common thread running amongst these nations, which boosted rapid growth in the past 50 odd years, is liberalization, urbanization, cheap workforce and collaboration. Let’s further analyze how these important factors play a role in the economies.
When we talk about liberalization, most of the Asian countries have adopted a liberal and promising Foreign Direct Investment Policy, which encouraged the entry of foreign goods and service providers into the Asian markets, to take advantage of the cheaper resources. Concurrently, these investments have created job opportunities for the locals and raised their standard of living by providing employment opportunities. With newly opened economies, the borders of the corporate world were constantly shifting.
Urbanization process in Asia started when the urban penetrated the rural, meaning that rural communities were heavily influenced to new ideas such as transportation, communications developments and the importance of education. The employment opportunities in countries, like China and India, increased spending power has also created a huge domestic market for retail products in these two countries, which contribute to 36% of the world population.
Most of the Asian countries have invested in education, which has successfully created a good quality of workforce. Moreover, the low cost of living and cheap currencies have caused the salary levels lower when compared to the west. Thus, these educated Asians are termed as skilled and cheap workforce. Therefore, without a doubt, Asia is an attractive destination for foreign investment to set up factories and service centers. A major benefit is that the foreign companies yields more profit from these pool of cheap talent and only just have to spend a little of that profit on the workforce’s income.
A significant event in the progress of the Asia- especially Southeast Asia- has also been the friendly collaboration amongst the countries in the region. Such collaboration was crucial to avoid and contain the conflict in the region due to acute cultural and ideological differences. The formation of Association of Southeast Asian Nations (ASEAN) in 1960’s was the consequential event. This organization’s objectives are to promote development in Southeast Asia and also to provide peaceful options to settle disputes so that countries need not necessarily have to proceed with war to solve conflicts. With the formation of ASEAN intra- region trade increased from 12%-15% in 1967 to 21% in 1997.
Despite Asia’s expeditious progress, the recent economic crisis has substantiated that the Asian economies are not decoupled from the developed nations since the west- Americans, in particular, are one of biggest customers for Asia – China in specific. Domestic customers could not indubitably fill the void left by those customers during the recession. However, structural changes following the Asian crisis in 1997 and stringent economic and banking policies, highly regulated financial markets combined with the domestic demand, ameliorated most Asian countries to live through the crisis relatively easier as compared to other developed economies. In fact, most of Asian economies just faced a slow-down and not a recession, thus recovering to bounce back much faster. For instance, China and India, the two massive countries in this region, continued to register impressive growth rates even through the slow down. As rightly said by an IMF authority, Asia’s resilient economy during the crisis is attributable to the strong economic framework, which has been put in place over the last decade. (Naoyuki Shinohara, Deputy Managing Director, IMF , 2010),
Now we come to the debatable question as to whether Asia is NOW leading the way.
Over decades, developed economies have invariably led the way – be it economic growth, scientific innovation, cutting edge technology, financial innovation or even crusading for international causes. However, the world is now at a gratifying crossroad, wherein Asian and other emerging economies can observe a positive economic growth for the next few decades as their relatively young economies perpetually grow through rapid industrialization and urbanization whilst the many developed economies – both the United States of America and many countries in the Euro zone – foresee a gloomy outlook for immediate or near future due to the colossal debt burden on their economies and incompetence to continue using debt as a stimulant for further growth.
Developed American and European economies have conventionally been self-sufficient in all aspects and had a sturdy trade and financial eco-system. Hence, they could always render to think about larger issues – for instance: funding research in many critical sectors, environmental problems and global trade/ diplomatic relations etc. With the sustenance of a united Euro zone under threat and United States possibly entering an extended period of slow growth, these economies might be constraint to apprehend about more immediate domestic issues such as unemployment while finely balancing monetary and fiscal policies, which will consequently make them more inwards looking. Spending cuts seem to be precursory for these economies to put their house in order. The complications have attained a state wherein regulators and governments akin do not see an easy way out. The fact that US, which has traditionally played the lead representation in world economy, has been downgraded by S&P from its traditional triple A rating spells out the gravity of the problem. The slow down of the American economy will have far reaching effects on all countries including the Asian countries. Even so, whilst the west will gradually be engulfed in their internal set of problems, emerging economies such as Asia will start leading the way. Since Asia does not have similar debt obstacles, it gives these countries some space to formulate and implement development plans and policies to become competent. Many of the Asian countries, in addition to their on-going struggle to eradicate poverty, control environmental degradation and other social issues, are now concentrating on solutions such as higher productivity, innovation and scientific developments to ensure that they can sustain their high GDP growth rate. Few of the key factors reinforcing to emergence of Asia as a power to reckon with, are increasing internal demand, intra-region trade and increasing innovations.
A major threat Asia faces in the near future is increasing internal demand and intra-region trade. Such a foreboding may be drying up of export orders from the West and hence, there is a perspicacious need to aggrandize domestic demand and intra-region trade. Due to rapid urbanization and accession of a new middle class, the spending power and consumption of the Asian consumer has actually increased contrary to the popular belief that Asians spend less. The consumer spending has risen up by 2009 at an average of 6.5% per annum much promptly than any other region in the world. However, such positive trends need to continue to ensure development of domestic markets in this region. As regards to the intra region trade, the total shipment of containers amongst the Asian nations is higher than number of containers shipped from Asia to Europe or North America. This seems to be an indication of the gradual shift in trade equations and the development of intra region trade. These trends need to be safeguarded and sustained to ensure that Asia, to some extent decouples itself from being apathetic in the advanced economies. Similarly, the article explains that China has already emerged as one of the largest markets in the world in the field of consumer products.
Over decades, Asia has been an influential instrument to support increasing innovations like mass production /distribution of ideas conceived in the developed world. Though some Asian countries like Korea, Japan or even Israel in the Asia zone have undoubtedly been the home of cutting edge technology for years, this phenomenon had not quite spread amongst the entire Asia. However, a recent Reuters article on patents, shows that though US has the highest number of patents filed per year, the accession in the numbers of patents filed year on year is slow for US, whereas there has been unprecedented rise in the number of patents filed by Northeast Asia – especially China, South Korea and Japan. India also sees a mediocre rise in the number of patents being filed. However, there should be a decent increase due to India’s increased focus on innovation and entrepreneurship. In fact, India has asseverated 2010 to be the decade of innovation. Though patents cannot be considered to a certain measure of innovation, it is a pointer nevertheless. Another factor contributing to rise of innovation is the gradual configuration of the start-up eco-system in many emerging markets in Asia – with the exception of Israel, which is already the world’s ‘start up’ nation. Angels, Venture Capitalists, Private Equity players are now making a beeline for these economies. Silicon Valley took years to construct and creating such a firm and efficient ecosystem will take years to build in the surfacing economies as well but the process has already been kick-started.
However, some concerns continue the debate regarding Asia’s future – such as inflation, demographics, reducing exports and capital inflows. Asia has conventionally been dependent on exports and capital inflows from developed nations to stimulate growth. While the recent predicament in the developed world has more than amply illustrated the risks associated with such a dependency, the governments are now surely and steady striving to galvanize growth internally. However, an overnight transition is not possible and hence, slower capital inflows and reducing exports from the developed world will continue to abide a pertinent issue for this region in the short and medium term. Another factor is the transmuting demographics. In the next 40-50 years, Asia will also face the same crisis, which the developed nations are currently facing with regards to an ageing population. Asia has yet to start preparing itself for this demographic shift. And finally, the most pressing burden today in this region is inflation. Food prices, even staple food like rice and bread, have soared in many parts of this region where majority of the people still live on meager salaries. In fact, it has reached such a stage that monetary policy alone may no longer be adequate to deal with this issue. These also translate into volatility in the stock markets, which aftermath leads to lesser foreign investment.
However, even with all these complications, Asia seems to be fixed at an advantageous time in history, wherein continued strong economic policies and greater collaboration among member nations can assist Asia become the next economic power – in a sense “lead the way” in the years to come.