Asia is the world’s fastest growing region and it accounts for the lion’s share of Australia’s exports.
Asia has managed to stun the world to date with its rapid reduction in poverty, and the rise of its middle class. But rapid development has also revealed various problems, including over-dependence on exports to Western markets.
Asia’s successful economies have generally relied on export-oriented growth, buttressed by high domestic investment. The limitations of this model are evident in Japan, whose economy has been in a deep funk for two decades. Japan never made the transition to a domestic demand- and innovation-driven economy. Rather, it spent its way to a massive public debt, and failed to prepare itself for the burden of an ageing population. Other Asian countries face the more difficult challenge of rebalancing their growth away from Western export markets at an earlier stage in their development. Many, like China, also have very rapidly ageing populations — but in contrast to Japan, China will become old before it becomes rich.
Rapid urbanisation is also an important driver of growth, as people move from rural to urban areas, and shift from low value-added agriculture to higher value-added manufacturing and services. Hong Kong, Singapore and Tokyo have succeeded in becoming global centres of finance, business and culture. But there are also downsides to urbanisation, such as higher rates of crime, violence and instability, which can undermine economic growth, as in Dhaka, Jakarta, Kolkata and Manila.
Inclusive growth is important for equitable development. But in many parts of Asia the gaps between rich and poor are widening, causing too many people to be excluded from opportunity through inadequate access to education and health services. In many countries, groups such as women, young people and indigenous peoples are also excluded from opportunity through discrimination.
Effective democratic governance, which many development theorists argue is essential to becoming an advanced economy, has very shallow roots in Asia. Only Japan, South Korea and Taiwan have mature, well-functioning democracies, for example. Weaker democracies like India, Indonesia and the Philippines are riddled with corruption and bureaucratic red tape, which undermine the business-investment climate. The Chinese Communist Party has proved to be very effective in mobilising resources for development, but it stands to be closely scrutinised by an increasingly prosperous, well-educated and well-informed population that wants freedom and is not likely to condone corruption and human rights abuses. Ineffective governance also allows for the rise of international economic crime in the form of human trafficking, money laundering, counterfeiting and piracy, and multiple forms of cyber-crime.
Regional cooperation is essential for peace and prosperity. Asia has many examples of successful cooperation such as high levels of intra-regional trade and investment, a proliferation of free-trade agreements, and a multitude of regional organisations including the ASEAN community, APEC and the EAS. But the region is bristling with tensions due to lingering historical ill-feeling toward Japan, disputed borders between almost all Asian neighbours, and increasingly conflictual relations between China and its neighbours in the East and South China Seas. While no one wants war, there is ample historical evidence to fear the worst.
In the global arena, Asia has still not made its mark effectively, despite its potential for great contributions. Japan has often been a passive participant. China is too preoccupied with maintaining domestic stability to take a lead globally. India remains a feisty, though perhaps not very effective, participant in global discussions. In contrast, South Korea is demonstrating a capacity for global leadership on issues such as green growth, information technology and education.
The development challenges facing Asia remain enormous, with half the region still living on less than US$2 a day, and the majority of its much-vaunted middle class in the lower middle-class category, with levels of consumption in the order of US$2–4 a day. Soon enough it will become clear that these fractures in Asia’s development models affect not only the quality of growth, but may limit the quantity of growth too.
The threats to the sustainability of Asia’s high growth path should prompt Australia’s business and government leaders to refrain from putting all their eggs in the Asian basket, and diversify away from their China-centric approach. The Australian government should also make better efforts to capture more of the ‘rents’ of the resources boom, and invest them in other national assets like education, infrastructure, and research and development. Moreover, business and government need to engage more seriously with the whole region. An ‘Asian century’ is more likely to be realised if the quality of political and economic governance can improve dramatically.
By John West editor-in-chief at MrGlobalization. He previously worked at the OECD and the Asian Development Bank Institute. East Asia Forum