Sunday, July 5, 2009

Asia's Rise

Thanks InfectiousGreed for highlighting this article from Minxin Pei. The author makes the case that we should not yet buy into the hype of America's decline and Asia's inexorable rise. He tackles the following affirmations:

Power is shifting from the West to the East.
At most the rise of Asia will lead to a multipolar world. For the time being Asia, while producing 30% of world output still live on a 5800US$ GDP per capita. In 08 Asia's combined military spending is still only 1/3 of America's. At current rate of growth it will take 77 years for Asia to reach US GDP per head. Asia is not one entity, expect continuous competition for power. Though dynamic the region can not yet play a role as a thought leader.

Asia's rise is unstoppable
Many hurdles down the road:
Demographic, over 20% of Asian will be elderly by 2050 leading the savings rate to fall
Environmental: pollution, constaints on natural ressources including fresh water could impact agriculture
Economical: with a global slump the export dependent model of development will stop being an engine of growth
Political: rising inequality, corruption, collapsing states, military conflicts all have potential to hinder growth

Asian Capitalism is more dynamic
There is little evidence that Asia's dynamism comes from a certain form of Asian capitalism. Fundamentals play a more important role (high saving, urbanization, low base, regional integration etc.). The following three unique features of Asian capitalism do not help. (1) the state interfers more in the economy (2) State owned companies and family controlled conglomerates dominate the corporate landscape (3) High savings due to poor safety nets

Asia will lead the world in innovation
US still leads in patents 92k in 08 vs 37k for Japan and 8.7k for South Korea. China produces 600000 engineering graduates each year but according to a McKinsey study HR managers consider only 10% and 25% of Chinese and Indian engineers employable compared to 82% for US grads.

Dictatorship has given Asia an advantage
Many countries experienced their fastest growth under undemocratic regimes (Singapore, Indonesia, South Korea, Taiwan and now China. But many autocracies impoverished their countries Burma, Philippines, North Korea, Laos, Cambodia. Furthermore as autocracies became less brutal their economic performance improved. More important than the regime are the appropriate economic policies. In summary: "Dictatorships are good at concealing the problems they create while democracy is good at advertising its defects".

China will dominate Asia
Not that easily as China has its own secession minded minorities covering 30% of its territory. China also has a formidable set of neighbours (Russia, India, Japan) that will not let its power go unchecked.

America is losing influence in Asia
Not according to a recent poll of Asians. Most countries in the region also welcome the US as the guarantor of Asian peace.

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