The Asian Century

If globalisation was the buzz concept of the 1990s and terrorism the focus of much of the early 2000s, the rise of China has been the dominant issue since the latter part of the 2000s. The focus of the 2010s has broadened to include the rise of India as well.

But as I've written many times in this blog, the Asian century is unlikely to be smooth, linear process. Expect the unexpected. China and India are large economies with lots of people, but largeness is no guarantee of continuing success as some writers appear to suggest. Michael Wesley, for example, argues in a recent article in The Australian's Literary Review that:

Unlike the Asian tigers, the two giants' success has nothing to do with the quality or singlemindedness of their reforms. It has everything to do with their size. It's a question of multiplication. Even a moderately positive policy measure will have a big effect if it releases the productivity of hundreds of millions. Even a minor gain in productivity will have global effects when multiplied by hundreds of millions. To be bigger than Europe or the US, China and India need to be only one quarter as productive per person and they are closing fast.... Even as the aggregate size of the giants' economies surpass those of developed countries, they will
remain poor societies. This means that even when they are huge, these economies will still contain within them plenty of individual-level energy that will stimulate further strong economic growth.

Wesley argues that size provides a wider margin for error:

The size of the giants means that they can afford to be less concerned about the effects of corruption, crumbling infrastructure and slothful bureaucracies on international investment. India's poor governance, bad infrastructure and high corruption are estimated to wipe nearly 2 per cent off its annual economic growth rate, and still it grows at 8.5 per cent.  The World Bank estimates that governance failures suppress foreign direct investment to China by 30 per cent, yet it remains the world's largest destination for FDI. Their countries' size has also given the giants' governments greater latitude to experiment with reforms through trial and error, without risking the performance of the whole economy.

Taken literally, Wesley's large-ism means that policy doesn't really matter that much although he does mention the importance of key early liberalising reforms. But if size were everything then why were China and India so stagnant for such a long period of time after decolonisation in India and the victory of the communists in China? It was policy that put these countries on the path to development, not size; although once liberalising policies were enacted size has mattered in the way that Wesley argues.But it is also policy that will help to maintain their success. As I've noted before, there is a delicious irony in the fact that economically liberal policy-makers and commentators have so much faith in the wisdom and prowess of the Chinese Communist Party!

The most important question about the future is whether China and India will continue to rise and the general consensus appears to be that they will. While Wesley hedges his bets on this question, the article assumes that rise is more likely than decline.

Whatever happens to them in the decades ahead, the rise of China and India will profoundly reshape the world of the 21st century. If they continue to grow at about their present rates the global economy will re-centre on them. Even if they suddenly stop growing at these rates and lapse back to their preboom momentum, they will continue to be important economies whose consumption still drags the global economy this way and that. If their detractors are right, and they are headed for a serious economic and social meltdown, the fallout from their collapse will define the rest of the century.

All of this holds irrespective of what happens in the rest of the world. The US may be headed for a renewed spurt of innovation-led growth, similar to what happened in the early 90s. Europe may find new sources of dynamism. Japan may too. But none of this will change the fact China and India have arrived as significant shapers of how the world works, and their preferences, enthusiasms and allergies will affect the choices other societies face. The tidal effects of the growth rates of the Asian giants reach further, faster and deeper in an increasingly globalised world. Emerging economies -- particularly very large ones -- are almost always more volatile than established ones, making their fate much more central to the fortunes of the global economy than their absolute economic size would suggest. Their scale and rate of change within an increasingly seamless global economy enables, displaces and reshapes economic activity and its social and political consequences far beyond Asia. For example, at their present rates of growth, China and India are adding more than 40 million workers to the global economy annually, the equivalent of the arrival of a France in the world economy every year.

While Wesley outlines the extensive geo-strategic and geo-economic consequences of Asia's rise, he is pessimistic about Australia's Asian future because he believes Australians are too complacent about the need for change:

Australia did very well out of the rise of Asia even though Australia didn't change, as it was repeatedly advised to. Australians kept their alliance with the US and their marked comfort with Western values and societies over Asian societies. Lowy Institute polling has consistently shown Australians overwhelmingly support the alliance with the US. They consistently feel more warmly towards Western countries -- New Zealand, Canada, France, Britain and the US -- than Asian countries. And those Asian countries they prefer are the most Westernised: Singapore and Japan. ...

He also worries about the lack of popular focus on Asia and about the inexperience of Gillard and Abbott on the diplomatic front. I'm not really sure how one would properly measure societal insularity, but my gut feeling is that we're probably less insular than we were in the past. Still it is not surprising that Australians feel more comfortable with Western values because we are a Western country. Nor is it surprising that they think that keeping the US Alliance is a good thing, having a good relationship with the world's most powerful country is a no-brainer.

Nevertheless, more effort could be made to increase educational opportunities about international developments and Asian studies. But how should this be done.

Those arguing for more funding for Asia literacy often infer that the problem is one of supply, that the government should supply more Asian education. In my experience at Griffith University, the problem has been more a problem of demand. The university has continued to support Asian Studies, but not many students want to do it. The demand is for International Relations, not for Asian Studies. I think that this is an understandable and reasonable position for students to take in a globalising world.

For many students that I come into contact with area studies are seen as too limiting. So simply increasing the number of Asian language programs or increasing the number of Asian social science courses will not make the difference that many assume. The much more difficult question is how to increase student demand for things Asian. Griffith for example has an IR undergraduate program that is intensively Asia focused (as well as an Asian studies degree). It also has an Asia-focused Master of IR and an excellent research institute called the Griffith Asia Institute. Sadly I don't have a solution for weak demand for Asia literacy, but it can't start at the university level.
 
In his post-Budget speech, Wayne Swan also muses about the rise of Asia and its consequences for Australia. While he shares Wesley's contention about the continuing and ineluctable rise of Asia, he is much more optimistic about Australia's future:

The speed and scale of the changes we are witnessing in Asia are unprecedented. Twenty years ago China and India together accounted for less than one tenth of world production. Today that share has doubled, and by the end of this decade it is expected to be over a quarter of world production. China and India will then account for more output than the US and Japan combined. By then it will be apparent that Asia has not only become the world’s biggest production zone, but also its biggest consumption zone.

So, concerned as we were by the overhang of the financial crisis, the floods, cyclones and earthquakes – we knew when we put the Budget together that our prospects were still bright and our economy would not be knocked off its long-term path.

Helped by strong demand from Asia we have seen a truly stunning rise in the prices for our commodity exports. Right now, our terms of trade are their highest sustained level in 140 years.
The huge global demand for our resources is also driving an investment boom the likes of which this country has never seen. ...

We are familiar with Asia’s role in driving our mining boom. Less understood are the opportunities for the broader Australian economy from the expansion of the Asian market for goods and services as income, wealth and living standards rise in the region.

One of the key points we make in Budget Statement Four, and what I want to stress to you today, is that in many ways the mining boom is just the first taste for us of the huge shift in the world’s economic centre of gravity in Australia’s favour.

As well as generating huge demand for our energy and mineral resources, sustained rapid growth in Asia is delivering hundreds of millions of people into a burgeoning Asian middle class. By 2020 there is expected to be more middle class consumers in Asia than in the rest of the world combined.  The implications for high-value knowledge economies like Australia stretch well beyond the mining boom. ...

Australia has always been at its best when embracing the forces of change rather than resisting them. We began 200 years ago with wool for the English market, and we extended over the following century into gold, meat and dairy. By World War I we were extending into manufactures, a trend that became even more pronounced during and after World War II.
Then we had the mining boom of the 1960s, the increasing exports of coal and iron ore and bauxite. At first gradually and then with greater speed we diversified our exports away from the UK to Japan and China and emerging Asia. We began to export more of our manufactures, and our services.

It is a mistake to think of Australia as an agricultural economy last century, although our farming sector made a huge contribution. Today it’s an oversimplification to think we’re just a resources economy, or that the time of our manufacturers has passed. Our manufacturers have innovated and moved with the times – and they will continue to do so, even in the face of the mining boom.
But the story that lies behind our economic development is the gradual rise of service industries in Australia. There are more than four times as many Australians in professional, scientific and technical services than there are in mining. There are four times as many in education and training as there in mining.

I make these points to you today because I want to remind you that while mining has rarely been more important to the Australian economy than it is today, most of us make out living in creating and delivering services. This is why the vast shift of world production, consumption and wealth into the region of which we are a part is so important to our future.

Not only for the opportunity to sell our coal and iron, our ore and gas and our other mining products, as important as these exports are. Not only for the opportunity to sell our wheat and wool and meat, as important as those exports are. Not only for the opportunity to sell our manufactures. But also for the chance to continue to transform our economy into one which increasingly exports services. ...

Now the point I want to make to you about this future for Australia is that our success in the Asian Century, in the mining boom and beyond, will rely more on education and training than anything, and that depends heavily on investment by governments.