The rapid rise of Asia over the past half century has been one of the world's most successful stories of economic development. But can Asia continue the good work, and fully realize the potential of an Asian Century? Or will it trip over and stumble like Japan has done for the past two decades?
The Asian Development Bank's "Asia 2050" draft report suggests that the miracle to date may have been the easy phase. The risk is that many Asian economies might fall into a "middle income trap", rather than staying the course with development. Under the ADB's middle income trap scenario, the region's GDP per capital would be about half that of the Asian Century scenario. It is salutary that Japan already seems to have been stuck in a "middle high income trap" for some two decades.
The Asian Century ia an exciting scenario as proposed by the ADB. If Asia continues its current growth trajectory, it could by 2050 account for more than half of global Gross Domestic Product, and trade and investment, and enjoy widespread affluence. Its per capita income could rise sixfold to reach the global average and be similar to European levels today. Some 3 billion Asians could be moved out of poverty and deprivation and into affluence.
But maintaining its current growth trajectory would not possible with a continuation of current policies. Much policy action is necessary at national, regional and global levels. For example, at the national level, some of the policy imperatives are: making growth more inclusive; modernizing financial sectors; managing massive urbanization; reducing radically the intensity of energy and natural resource use; harnessing the full potential of entrepreneurship, innovation and technological development; and improving governance and transforming institutions.
Regional cooperation and integration are also critical for Asia's march towards prosperity. At the global level, Asia will need to gradually transform from being a passive onlooker in the debate on global rule-making and a reticent follower of the rules, to be an active participant in the debate and a constructive formulator of the rules regarding an open trading system, stable financial system, climate change, and peace and security.
The ADB argues that four overriding intangibles will determine Asia's long-term destiny: mature, far-sighted and enlightened leadersip; a pragmatic rather than ideological approach to policy; building much greater mutual trust and confidence between the region's major economies; and a commitment and ability to modernize governance and retool institutions.
As with all international reports like this, you have to comb through to find many of the very interesting points. And on a close reading of this report, there seems to be lots of pessimism.
The report highlights the process of economic catchup, where economies are essentially absorbing knowledge and technology from the rest of the world, and distinguishes this from the challenge of being on the global technological and knowledge frontier where innovation is the main motor of growth.
But one point that is never really explored thoroughly is the case of Japan, Asia's most developed economy, whose GDP per capita is still about one-third lower than the US and the advanced economies of northern Europe. Whille many parts of Japan's manufacturing sector may be on the global frontier, its services sector is not globally competitive all. Tokyo is not Asia's financial capital. That prize is shared by Hong Kong and Singapore. Japan is weak in business services. Large Japanese companies are not globally integrated enterprises, but are still very Japanese in their work culture. And Japan's public sector remains a bureaucratic nightmare, and grossly inefficient. Korea and Taiwan, East Asia's other most advanced economies, also have very inefficient services sectors. All three economies are in desperate need of substantial deregulation of their services sectors, but there is no progress in sight.
Further, developing Asia's record of poverty reduction is very impressive when measured against the $1.25 a day level of absolute poverty. But Asia's developmental progress is much less impressive when measured against "non-income" indicators of poverty, like access to basic sanitation or clean water.
Looking ahead, there are many reasons for Asians to be concerned about their capacity to realize an Asian Century:
-- Many Asian economies do not have eco-systems that are conducive to innovation. They put too much of a premium on government controls and planning, and less on individual actions and initiative. A challenge for China in particular is whether truly transformative innovations can occur under institutional and political conditions that put a high premium on controls rather than on discussion and debate.
-- Asian education systems have generated "creativity deficits". Entrepreneurship and innovation can only flourish in an eco-system that fosters creativity, and tolerates risks, failures and out-of-the-box thinking and behaviour -- broad capabilities that are best addressed through a country's educational system. The systems in many Asian countries (including China and India), however, have come under severe criticism for their emphasis on rote memorization and test-taking.
-- Innovation in Japan and Korea, the most technologically advanced Asian economies, is based on continuous improvement and incremental innovation. Radical innovation is much less common. Factors holding back innovation include strict management hierarchies and seniority control. The close collaboration between universities and industry that is required for successful innovation and entrepreneurship is rare in most economies in Asia, as compared to the experience in the US.
-- Climate change will have a big impact on Asian populations. Measured by future populations that will be exposed to half metre sea-level rises, 15 of the world's 20 most exposed cities are in Asia. The list of 20 is: Kolkata; Mumbai; Dhaka; Guangzhou; Ho Chi Minh City; Shanghai; Bangkok; Rangoon; Miami (US); Hai Phong; Alexandria (Egypt); Tianjin; Khulna; Ningbo; Lagos (Nigeria); Abidjan (Cote d'Ivoire); New York (US); Chittagong; Tokyo; and Jakarta.
-- "Governance deficits" exist in many Asia economies with rising corruption and deficits in the rule of law, and in voice and accountability. The quality of communication between those who govern and those who are governed will be very critical as social media grow in importance.
-- Countries with ageing societies will carry a growing constituency which is inherently conservative on substantive economic and political reform issues and feels strongly about having earned the right to be looked after in terms of health care and pensions. After all, the ageing generations in Japan, Korea, Singapore, Taiwan and soon China are the very people who have created the prosperity that the new generations are born into.
-- In short, notwithstanding globalization and rapid economic growth, Asia will likely remain Asian, and traditional hierarchical relationships embedded in Asia societies will not be swept aside very quickly.
-- In a similar vein, it will be a challenge but a necessity to forget the regional wounds of the past. China, India and Japan must settle their distrust and work together to assure that conflicts in the region are prevented or terminated.
-- Moreover, in order to have a voice and influence in the global agenda that is commensurate with its economic weight, Asia will need to formulate a unified geopolitical position on a range of global issues. This can only be achieved through genuine regional dialogue and cooperation.
In short, Asia has a lot of challenges before it to realize an "Asian Century". But the region has shown its resilience and capacity for action during the global financial crisis. Japan's triple whammy of earthquake, tsunami and nuclear crisis unleashed a massive wave of regional solidarity culminating just recently in signs that China, Japan and Korea may get serious about negotiating a free trade agreement.
Although not preordained, an Asian Century is still a very real possibility.
Asia 2050: Realizing the Asian Century