Opportunity Beckons As Asia Reemerges As the World’s Dominant Economic Power – OpEd

By Dr Palitha Kohona*

Asia, after having been accorded the dubious distinction of being the poorest continent in the 1960s, has within a very short space of time, transformed itself in to the economic powerhouse of the world and is achieving prosperity at a dizzying pace. This rapid rise has caught the West off balance and many analysts find the transition difficult to accommodate in their existing frames of reference, not to mention the political class and the media.

The much flaunted and oft prescribed liberal democratic political structures and open economies and free trade have not been faithfully replicated by the majority of countries of resurgent Asia as they strive to catch up to the West. At most, only lip service is being paid by many to liberal democracy. Liberalized trade and open markets, an article of faith for so long in the West, has not been adopted in full and it is being gradually diluted even in the West, particularly in the face of Asian competition.

The dominant economy of the West, the USA, is now being forced to backpedal on the trade liberalization and globalization Crusade of yesteryear and is busily putting up barriers. The noisy call to open doors to foreign investments is being replaced by strict monitoring of inward investments, ostensibly for security, environmental and sociological reasons. Some entertain genuine fears that one of the pillars of the Bretton Woods institutional architecture, the World Trade Organisation (WTO), might collapse due to U.S. actions. 

Economic and trade concepts advocated with messianic fervour are rapidly being modified just as resurgent Asia was beginning to reap their benefits.

Did the West promote a myth all these years, albeit in good faith, or were these concepts advocated for their immediate convenience, including through post World War II international institutions set up to advance their own vision for a better world? Is it now backtracking when confronted by a super competitive Asia which has become adept at exploiting the rules propagated by the West itself. Perhaps, from their perspective, self-interest and common good coincided.

History has witnessed a prosperous Asia fall from grace. In the early 1820s, Asia accounted for two-thirds of the world’s population and more than 50% of the wealth produced globally. The subsequent impoverishment of Asia could be attributed to a number of overlapping factors, including its forcible integration to a world economy on conditions determined by colonial and imperial priorities, development exhaustion, stifling and inward looking conservatism, perhaps influenced by regressive religious constraints, dissipation of the dynamism and innovation of the past, paucity of advances in military technology, strategy and science and internecine conflicts which were unscrupulously exploited by Western colonial invaders.

The causes for the downfall hold lessons for Asia in the contemporary environment. The same weaknesses, where they manifest themselves, including overwhelming suspicions of other countries of the region, continue to be exploited by interested outsiders who still remain in control of global financial structures and the media.

By the late 1960s, Asia had slid to being the poorest continent in the world, but with more than half of the world’s population. Its social indicators were among the worst. The task of feeding this massive population was a practical and immediate challenge, highlighted in the Club of Rome’s ‘Limits to Growth’.

But to the surprise of many, Asia, modifying feudal and semi feudal socio-economic structures and employing modern science and technology, pulled through and surprised the many pessimistic commentators. The food problem was solved despite the numerous publicly expressed reservations. Millions were extricated from absolute poverty within a single generation.

It is pertinent to remember that Asia now accounts for 30% of world income, 40% of world manufacturing, and over one-third of world trade, while its income per capita converged towards the global average. Already Asia’s GDP exceeds that of the USA and EU. By 2040 it will account for about over 50% of World GDP, with India or China having the biggest individual GDP. China lodged 44% of patent applications in 2016. Hyderabad is catching up to Bangalore as an IT hub. Technology was spurring Asia, especially South East and East Asia ahead. By 2040, Asia is likely to account for nearly 40% of global consumption.

Asia now accounts for around one-third of global trade in goods, up from about a quarter 10 years ago. Its share of global airline travelers has risen from 33% to 40%, and its share of capital flows has increased from 13% to 23%. China alone generated over 137 million international travellers per year spending over 130 billion Dollars and the number is expected to grow. When I started travelling on government delegations in business class in the middle eighties, it was rare to see non-white faces in this class. Today, it is the other way around.

McKinsey Global Institute research demonstrates the impressive extent to which the global center of gravity is shifting toward Asia with the region increasing its share of global trade, capital, people, knowledge, transport, culture and resources. Of eight types of global cross-border flows, only waste is flowing in the opposite direction, reflecting the decision by China and other Asian countries to reduce or eliminate imports of waste from developed countries. China stopped the import of waste in 2017. Some, including the Philippines, Thailand, Vietnam, Singapore and Malaysia have begun to return waste to European source countries, something unthinkable two generations ago.

According to the World Bank, with regard to ease of doing business around the world. India has risen to 63rd place, from 142nd when Narendra Modi took office in 2014. He is aiming for the top 50. China is already at 31. New Zealand and Singapore hold the top two positions. The Middle East demonstrated new strength with Saudi Arabia, Jordan, Bahrain and Kuwait among the top 10 gainers. That most-improved group also included India, Pakistan and Nigeria, three populous nations.

Sri Lanka lags at 99 in the world rankings and must improve fast if the people’s dreams of a better future and an expanding economy are to be realized. Sri Lanka, with many natural and sociological advantages, needs to examine what is holding it back and understand what makes the other Asian countries shine. Inefficient Tax and administrative structures, corruption, lack of transparency, dynamic and visionary managers, uncertain policies and lost opportunities, etc come to mind.

21 of the world’s 30 largest and four of the 10 most visited cities are in Asia. A dizzying range of business opportunities have opened up in Asia’s mega cities. Reflecting this trend, Yangon, Myanmar’s commercial capital, attracted greenfield foreign direct investment (FDI) in knowledge-intensive sectors totaling $2.6 billion in 2017, up from virtually zero in 2007.

China, South Korea and Taiwan in East Asia; Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam in South-East Asia, Bangladesh, India, Pakistan, and Sri Lanka in South Asia, and Turkey in West Asia, account for more than four-fifths of the population and income of the continent. Japan, a high income country, was already industrialized 50 years ago.

Today China’s GDP, although its growth has slowed, tops USD 14 trillion. India’s 2.6 trillion. China’s economy has been expanding at 6% per annum and contributed around 30% of global growth in the past eight years. India’s economy expanded at 5%. India is expected to overtake the Chinese economy around 2050. The regional grouping of ASEAN, with 600 million people and a combined GDP of $2.8 trillion, is surging ahead economically, including technologically, making it an attractive partner and a model to outsiders.

The Asian Comprehensive Economic Partnership (ACEP), currently being negotiated after the U.S. withdrew from the Trans Pacific Partnership. offers further opportunities for collaboration. China has long pushed to conclude this pact, which also includes Japan, South Korea, Australia, New Zealand and 10 Southeast Asian nations. The technological advancements of the region are breathtaking.

Asia’s economic transformation in this short time-span is almost unprecedented in history. Rising per capita incomes have transformed social indicators of development. Literacy rates and life expectancy have risen dramatically.

President Xi Jinping’s flagship Belt and Road Initiative, covering more than 68 countries, including 65% of the world’s population and 40% of the global gross domestic product as of 2017, pledged $60 billion in financing for projects across the African continent. China’s trade with Africa has soared over the past 20 years from about $10 billion to close to $200 billion. In a reflection of shifting balances of power, nearly twice as many African leaders attended the Forum on China-Africa Cooperation in Beijing in September 2019 than the UN General Assembly in New York two weeks later.

Russia invited over 50 African leaders to its first Russia-Africa summit in Sochi in late October, the culmination of a strategic push that marks Moscow’s re-entry into the continent. With trade and investment replacing aid, and due to the inroads already made by China and Russia, U.S. and European multilateral lenders are also directing more funds towards Africa.

The role of government

But it is important to recognize that Asia is bewilderingly diverse. There are significant differences between countries in geographical size, embedded histories, colonial legacies, nationalist sentiment, natural resources, population size, income levels and political systems. The reliance on market forces and the degree of openness of economies has varied greatly across countries and over time.

Similarly, the politics and ideologies have also tended to differ widely from authoritarian regimes and oligarchies to substantial democracies. From communism, socialism with capitalist characteristics, to state capitalism and simple robber baron capitalism. Development outcomes differed and different paths to development were adopted, because they decided early that there was no universal one size fits all solutions.

Rising investment and high savings rates combined with the spread of education, especially technical education, were significant underlying factors contributing to Asia’s performance. Rapid industrialization fuelled growth, often led by exports. Coordinated and well considered economic policies, including international policies, contributed.

The developmental states in South Korea, Taiwan China and Singapore coordinated policies across sectors over time in pursuit of national development objectives, using carrot-and-stick policies to implement their agenda, and were able to become industrialised nations in just 50 years. China emulated these developmental states with tremendous success, and Vietnam followed the same path two decades later. Both countries have strong one-party communist governments that could effectively coordinate and implement policies.

Successful Asian economies gradually embraced openness. Integration with the world economy was almost always strategic and cautious, rather than passive insertion. Trade policy was liberal for exports but in many instances, restrictive for imports. On many occasions, it was designed to encourage local manufacture. Government policies towards foreign investment have been shaped by national development priorities, rather than willy nilly. While openness was necessary for successful industrialisation, it was not sufficient and facilitated industrialisation only when combined with industrial policy.

Governments performed a vital role in the transformation of Asia. It was catalyst and supporter. Success at development in Asia was about managing this evolving relationship between states and markets, by finding the right balance in their respective roles.

*The writer is former Ambassador and Permanent Representative of Sri Lanka to the United Nations, and former Foreign Secretary.