Seize the Asian century 

Seize the Asian century 

Context

The old economic order is dead, but India and China must take the lead to preserve its successes

Three decades of success

No other period in human history has seen as many people lifted out of absolute poverty as in the three decades since the mid-1980s. That is largely because the world’s two most populous nations, China and India, made rapid strides in terms of economic growth in this period

Growth for both India and China

China, which embraced openness and internal reform more vigorously than India, has been the bigger beneficiary. India, with its limited openness and gradual internal reform process, registered lower growth than China but higher growth rates than any other point in its history

Benefits to millions

Author states that it would be cynical to say that the forces of globalisation and free markets have only enriched a minority in these countries. The fact is that more than half a billion people have been lifted out of poverty in a single generation by the very forces that are now being buried in the countries of their origin

Flaws with globalisation

Author points out that globalisation has had its flaws too

• Financial crisis: The role of Wall Street and global finance in bringing disrepute to the system is well known. That is what precipitated the 2008 financial crisis which sowed the seeds for a backlash. But curiously, politics has chosen to target free trade and free (only relatively) movement of labour, soft targets compared to the powerful world of finance

There is a grave danger for both emerging economies and advanced economies with this form of backlash

Argument for globalisation

• In the advanced economies, it is convenient to blame free trade for job losses in manufacturing, without commenting on the huge benefits such trade has brought for consumers who are clearly better off as a result of cheaper products and services. It is easy to target immigrants without acknowledging the huge value-add they bring to the host economies
• Think of the number of foreign-born persons in top positions in American or British academia or in Silicon Valley. Without them, the U.S. (even the U.K.) would not be so wealthy. Any sustained backlash against free trade and immigration will ultimately hurt the economic and geo-political interests of the U.S. and the U.K.

Developing countries in more danger

For countries like India and several other emerging and developing economies, a closed world means missed opportunities and a longer journey out of poverty for those who continue to remain poor. They have the most important stake in ensuring that the world doesn’t return to wealth-destroying autarky

• Autarky: Autarkyexists whenever an entity can survive or continue its activities without external assistance or international trade

In-house reforms needed

Before raising an argument for global reforms emerging economies need to put their houses in order

• Eliminating corruption: For many emerging economies, particularly China and India, the backlash against free markets isn’t likely to stem from external considerations (free trade or free movement of labour), but from a free market system at home that has been vitiated by crony capitalism. It isn’t surprising that the leaders of both China and India, President Xi Jinping and Prime Minister Narendra Modi, have devoted a considerable amount of political capital to combat corruption and root out entrenched vested interests. It isn’t an easy task and it won’t happen overnight but the battle against corruption and cronyism is a critical element in retaining the legitimacy of an open market economy which has delivered more prosperity than any alternative system in the last hundred years
  • Improving state’s capacity: In India, the battle against graft has to be accompanied by an attempt to improve state capacity, because there are certain critical functions which only the state can perform
• Willingness to open up: Reform at home must be accompanied by a willingness to open up to the rest of the world
  • Protectionist China: China has been aggressive about exports and about attracting foreign investment but has been more protectionist about imports (particularly services and agricultural goods) and its state-owned enterprises
  • Reluctant India: India has never quite embraced an export-oriented development strategy

Acknowledging the size of global market

Somehow the point that the domestic market is large enough has won the argument even when it is apparent that the global market is several times that size

• Merchandise trade market: Just the global market for merchandise trade is $18 trillion, almost nine times the size of India’s total GDP

What India needs to do?

• India needs to capture a much larger share of that market than its present 1.6% share. India also needs to capture a greater share of foreign investment. But for that to happen, it needs to give up its traditionally defensive posture on trade in particular. The opportunity has never been better as China’s wages rise and it reorients its economic strategy from primarily an export-led growth to a more consumption-driven economy.

Leading the change together

Author puts forward his view that India and China hold the key to the emerging global political economy. Joining the U.S. and other advanced economies in closing up will only lead to slower growth

• Challenge: The challenge for India and China, as the two fastest growing major economies, is to engage with each other and with other willing partner nations, particularly in the East Asia and the Pacific region (including advanced economies like Japan and Australia), to maintain openness and embrace globalisation
• Avenues for engagement: The Regional Comprehensive Economic Partnership (RCEP) is one forum where this engagement can happen. India can engage on free trade and free investment in other groups like the BBIN (Bangladesh, Bhutan, India, Nepal) and BIMSTEC (Bangladesh, India, Myanmar, Sri Lanka, Nepal, Thailand, Bhutan) and via these groups with the entire ASEAN region

Conclusion

The scenario is set for an Asian century. But for it to materialise India, China and the rest of the region need to look beyond rivalry and defensiveness to explore the possibilities of economic integration as the West, so dominant for the last two hundred years, marginalises and isolates itself. That is the promise of 2018 and beyond